Study Shows 90’s Dotcom Bust Was No Bust At All
December 5th, 2006
Written By: Adam Sussman
According to a FoxNew.com article “The Dotcom Bust? Not As Bad As You Think” researchers studied more then 700 internet venture companies who applied for venture capital in the late 90’s and found they had a five-year survival rate of nearly 48%; “a percentage of success comparable to those in other industries, such as the auto industry, during their fledgling phases”.
The article goes on to say
Kirsch [professor at the Robert H. Smith, School of Business at the University of Maryland and a co-author of the study.] explained that as he and his colleagues explored why their expectations had been so wrong, they came to reject their initial perception that the bust was the result of the creation of too many Web-based firms during the boom. Rather, the analysis suggests that the bust was the result of some subset of start-up businesses losing money because they followed a “Get Big Fast ” business strategy.
Not to be snide, especially since I was involved in a handful of dot-com’s during that time but HELLO CAPTIAN OBVIOUS!
They cite Webvan, the online grocery delivery service where investors poured over a billion dollars as an example of Get Big Fast. I have to say I saw the dot-com crash from some primo seats, not from the nose bleed sections these researchers were sitting at.
Being part of a large ISP that co-located many start-up web ventures and having a personal relationship with many of the founders, most of their money came from seed funding. Most of the startups that we came in contact with were funded from personal savings and small groups of friends and family.
“Back then, no one knew how to make money on the Internet,” said Brent Goldfarb of University of Maryland, one of the studies co-authors. “Nevertheless, a lot of ideas on which Web startups were founded were sound. That’s why so many dotcoms are still around.”
Almost all the startup I came across were founded on ideas of generating advertising revues. Many founders threw tons of their seed money into expensive redundant infrastructure and overpriced software development and thought the masses would come.
If I had a dollar for every time I heard some wacky CEO say to me his idea was going to make BILLIONS from online ad revenues!
What they failed to realize was the fact they needed marketing dollars. By the time most ‘A’ Round funded, seed funded, angle investor funded companies realized this, they went hunting for VC money. Problem was it took forever to get in the door with these guys because they were swamped and by the time many did that’s was when Alan Greenspan started up with his interest rate hikes causing many investors to pull back hard on the reigns.
When the interest rates went up, it really hit the fan for nearly everyone I knew.
“However, a new study suggests that the late-1990s dotcombubble did not burst quite as dramatically as many perceived.”
It’s an interesting study to say the least!
