The Great Internet Stock Correction of 1997, or 1999, or …

Yesterday I read Kara Swisher’s post What Does the Recent Tech Stock Downturn Mean? The Truth Is Nobody Knows. It’s great. Go read it – I’ll wait for you.

In the last two weeks there’s been a flurry of articles about the implications of a 25% decline in the public market value of a bunch of Internet stocks. They range from “the sky is falling” to “the IPO market window is closing” to “there will be more stupid television shows about Silicon Valley” (I prefer Game of Thrones and 24, thank you very much.)

As many of the Cylons from BSG are fond of saying, “All this has happened before, and all of it will happen again.”

I remember a moment in time in 1997. We were in the middle of fundraising for Softbank Venture Capital (which became Mobius Venture Capital.) It was the first VC fund I’d helped raise. We probably had about $150m committed and were running around trying to get to $300m for what we had positioned as a dedicated Internet VC fund. I can’t remember the month, but I think it was in the summer, that all the public Internet stocks dropped a bunch (probably 25%). Suddenly every meeting we had turned cold with all of our potential LPs either asking how we were going to make money on the Internet or asserting that there was no way that we’d make money on the Internet. A few months later the public markets for Internet stocks turned around and we closed a $330 million fund which ended up doing extremely well.

In 1999 we filed an S-1 to take Sage Networks public. I was a co-founder and co-chairman. We were planning to go public in the early spring, but in February we acquired a company called Interliant which doubled our side. We had to grind through a refiling of our S-1 which cost us a month. We finally hit the road with the intention of going public by the end of April. Our underwriters (Merrill Lynch) told us not to worry that the SEC hadn’t cleared our filing yet – they always did it a few days before you went public. I spent three weeks on a road show with our president and CFO building the book. Day after day passed and we didn’t hear from the SEC. Two days before we were supposed to price, the book was 10x oversubscribed and our $9 – $11 price looked like it could move up meaningfully. They day we were supposed to price we still hadn’t heard from the SEC. “Don’t worry” said the banker at Merrill Lynch, “We’ll get it done.” The next day, when we were supposed to be trading, a fax came through from the SEC. It was 20 pages long and had about a month’s worth of work to pull together on the F-pages of the filing (we had acquired 20 companies.) That night we all drank a lot of scotch – we knew the IPO wasn’t going to happen that week and we’d just wasted a road show. I remember being completely numb the next day as I flew home from NY to Boulder, not completely understanding how we had just blown the IPO.

A few weeks later Internet stocks started to fall. I vaguely recall that eBay was one of the bellwethers at the time and I think it had a big drop. Suddenly the IPO market window closed. No one was interested in Internet stocks, let alone one that was being tortured by the SEC for accounting disclosure on a bunch of acquisitions of tiny companies.

At the end of June I went to Italy for a week vacation with my wife Amy and my parents. We did a walking trip which I remember being wonderful – 10 miles a day finished off with lots of food and wine in a beautiful Italian countryside. No phones, no email. Until Thursday, when I got a call at the villa we were staying at from one of my board members who said “you have to come home right now.” I responded with “I’m flying home Sunday and will be back on Monday.” He said, “No – now – the road show starts again Monday and you have to be at the printer on Saturday to sign off on the filing.”

I scrambled to find a flight home from the middle of Italy, got to NY by Saturday mid-day, re-started the road show on Monday, and we were public by the end of the week. We went out at $10 and traded up to $15. When I checked the market indexes, they were basically the same as they were two months earlier before things dropped.

Lots of folks are going to pontificate about what is going on in the public markets. Most have an agenda or a vested interest.

If you are an entrepreneur, ignore the pontification and go build your business. Pay attention to the dynamics in the macro, since they will impact you, but don’t get caught up in. Don’t create a narrative to justify something that is going on. Focus on the reality – your reality – and do your best operating in the context in which you can’t control.

All this has happened before, and all of it will happen again.

  • ObjectMethodology.com

    I think it’s not about the markets. It’s about being tired of something. How much web can a person take before it’s time for a change? People have been using the web, just like they do TV, as entertainment while they wait for an economic recovery to take hold. But I saw today that the numbers show a recovery isn’t happening.
    .
    Here’s basically the request from everyone: “Show me the money!!!”

  • Eddie Wharton

    One of the most interesting bits to come out of my interview with you was that Foundry does not obsess over Macro trends in finance or other VC’s. 95% of other VC’s I spoke with had a narrative that explained where they fit in among their direct competitors (VC’s), indirect competitors (other money managers) and some time series trends in tech or finance. Interesting and instructional to ignore the noise, resist the urge to narrative fit and focus on getting stuff done for VC’s and Entrepreneurs

    • http://www.feld.com bfeld

      Thx. Yup. I lost interest in all that stuff about 12 years ago after the Internet bubble burst and I realized that I had to dig my world out of a major ditch.

  • http://www.pointsandfigures.com/ pointsnfigures

    Good question to ask and entrepreneur (and a VC). Are you a trader or an entrepreneur? Are you a trader or an investor? If you are a trader, pay attention to markets-but don’t try and build a scalable business. If you are a trader, don’t invest in startups and expect the same road or outcome.

    Entrepreneurs and investors keep their heads down and don’t worry about the day to day moves of the market. Great businesses were created in this last down trend from 2007-2009, and great businesses will be created in the next one.

    I used to trade every day for a living. It was fun, but working with entrepreneurs can be a lot more fun and rewarding.

    • http://www.feld.com bfeld

      Right on the money!

  • http://nickgrossman.is/ Nick Grossman

    I love any post that includes “go read it. I’ll wait” :-)

  • http://www.cornfedsystems.com/ Frank W. Miller

    I had a feeling you wouldn’t like Silicon Valley. Its like Valleywag on TV.

    • http://www.feld.com bfeld

      I made it through five minutes of the first episode. I’m going to try one more time now that there are few episodes out.

      • http://www.cornfedsystems.com/ Frank W. Miller

        1) I hate network produced tv 2) Cmon, valleywag on tv? The potential to suck is almost a 100% just in the concept.

        That said, I’ve watched all three episodes and I like it. Not in the cynical way I look at a lot of the real entrepreneurial culture. Its like this novel my cousin wrote. I’m diggin on it cuz I’ve seen all of it I spose and even tho it is over the top, its not so far.

        I would be particularly interested in your opinion of the portrayal of the VC in episode 3.