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New Economy, Same Old Realities

NEW YORK: Let me begin with a warning: avoid the hype. In the US, anybody who was ever a VP of marketing can go to Palo Alto in Silicon Valley, stand on the corner of Sand Hill Road, and get $25 million for a website for Siamese cats. Next week someone will start a website for Persian cats. Meanwhile, anybody who was ever in finance can leave JP Morgan or Citibank, find three friends, one of whom took a computer programming course in college, and raise $100 million to invest in the internet. These people sell ideas to each other. Prices shoot up and they deem themselves brilliant.

It’s scary. Little real value is created. Say 20 companies start sites for cats. Each expects a 20% market share. Do the math: it won’t work. So though I welcome the advent of venture capital for internet investments outside America, I worry. I see the same silliness happening. Three guys – and I won’t say who they are because I am not impressed with them – decide to start a venture fund to invest in high tech in Europe and off they go; they raise a $100 million easily.

Even people who used to invest in Russian oil and steel companies have jumped on the bandwagon. I got a fax from one, Boris Jordan, telling me he was starting a European high-tech venture fund and would I care to work with him. So, from a time when there was a shortage of venture capital, a shortage of interest, we are moving quickly to a point where there is too much.

What remains in short supply are people who know what they are doing. Most internet ideas are fine as ideas, but what will make them profitable? People who know how to run a business. There is no magic in starting a website. There is a lot of magic in hiring people, making sure your VP of sales gets along with your VP of marketing, making sure that what is ordered electronically is delivered physically, finding someone to answer the phones, dealing with everything that happens in a business. The fact that sales increase 20% a month does not mean that you can grow your business 20% a month. Beware those who say starting an internet business is easy.