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Fuzzy Math Few IPO's

By: Dan Morrill

The NYTimes and the Seattle PI are posting that Silicon Valley is awash is dollars, with few consumers, in a repeat of the Dot Com bubble.

The major redeeming feature here is that the stock markets are not awash in IPO's with weird valuations to go along with it. Seattle though has been largely ignored, despite having some excellent buyouts, and some intriguing startups happening locally.

The good part is that the boom/bust cycle might pass by the Seattle area, and the commodity level of startup dollars required means that the bust cycle when it comes might not hit Seattle as hard as other areas.

The very nature of commodity startups, a few tens of thousands of dollars to prove a concept means that the money required from Venture Capitalists does not need to be excessive, or even wanted when that kind of money can be pulled from other sources. Angel funds have taken a big step forward, with some companies minimizing the investment risk by making micro payments of 10,000 dollars to companies wanting to prove a concept.

Still, as I have noted before, the big difference this time is that the new breed of Internet companies aren't going public. And while a YouTube or Skype deal could hurt Google or eBay in the long run, the people most likely to get pricked this time are the venture investors who are paid big money to invest in high-risk startups and the employees who should always join a startup knowing that it could fail. Source: Seattle PI

Like the dot com bubble days, internet startups are focusing on audience and not on revenue. Rather than keeping costs contained within the revenue that the startup generates, those startups are seeking money from Venture Capital, which is a change from the business idea a year ago when most venture capital was not even sought after by startups.

The change in environment, as well with the lower costs of starting a company reduces risks for everyone. But money chasing after too few good ideas means that the people who are going to be taken to the cleaners are those that have invested in the VC Firms, as well as the people who have given their all to the companies that they work for when they fold.

The whole industry has settled into a boom bust cycle, with valuating a startup to be difficult. The recent Yahoo, Microsoft, and Google investment or outright purchase has inflated the greed factor that money is chasing after. The payday remains the same, but the way that the payday arrives has changed from Web 1.0 to Web 2.0. We are not at the peak of the bubble yet, but there can only be so many blogs, so many streaming media sties, and so many social networks with tens of million of people.

The people who are most likely going to survive the eventual slowdown if not bust in Web 2.0 are those that have focused on a hard-core niche, provide an actual value, or are actually making money to go along with the niche or value proposition.



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About the Author:
Dan Morrill has been in the information security field for 18 years, both civilian and military, and is currently working on his Doctor of Management. Dan shares his insights on the important security issues of today through his blog, Managing Intellectual Property & IT Security, and is an active participant in the ITtoolbox blogging community.

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