Here We Go Again…

I remember that Monday morning, January 10, 2000. The day that AOL announced it was buying Time Warner. The word starting seeping out the night before, Sunday night. I went to sleep like it was Christmas eve, and couldn't wait for what market madness the morning would bring. I was working at Flatiron Partners, and Fred, Jerry, Bob and I had a standing Monday morning breakfast at the Mayrose Diner. We all looked at eachother that Monday morning with our mouths agape, shaking our heads in amazement that this was really happening. In retrospect, that deal was a watershed for the Internet. It announced that new media was going to be bigger than old media. It also marked the final inflation of a bubble that popped painfully only a few months down the road.

I remember that Monday morning, January 10, 2000. The day that AOL announced it was buying Time Warner. The word starting seeping out the night before, Sunday night. I went to sleep like it was Christmas eve, and couldn’t wait for what market madness the morning would bring. I was working at Flatiron Partners, and Fred, Jerry, Bob and I had a standing Monday morning breakfast at the Mayrose Diner. We all looked at eachother that Monday morning with our mouths agape, shaking our heads in amazement that this was really happening. In retrospect, that deal was a watershed for the Internet. It announced that new media was going to be bigger than old media. It also marked the final inflation of a bubble that popped painfully only a few months down the road.

I came home tonight to a techmeme filled with news about Amazon’s boffo earnings, rumors about Yahoo! and Microsoft’s interest in acquiring Foursquare, and a Bloomberg Business Week analysis of whether Pincus’s Zynga can continue to extract hundreds of millions of dollars from people buying virtual hoes in his games on Facebook. Brad Stone’s story about sharing credit card transactions in public was already filed for tomorrow New York Times. Waiting for me on the kitchen counter was a copy of this week’s New Yorker, filled with an essay by Ken Auletta “Publish or Perish: The Ipad Takes on the Kindle.” Next to it was New York magazine, whose cover “Life is Tweet” features Sam from drop.io, Karp from Tumblr and Dens from Foursquare. All the while, my mind was still adjusting to the new contours that had been etched into it, first by Twitter’s annotation feature announced at its Chirp conference last week, and then by Facebook’s Open Graph blitzkrieg yesterday. It feels like something big is about to pop, something on the AOL-buys-Time Warner richter scale.

All of which begs the question, what gives? The great recession of 2008 is a distant memory, as we move through the Spring of 2010 with stocks like Apple and Amazon up more than 100% from their lows. The Nasdaq chart from the financial crisis up until now looks something like this:

nasdaq20102

And to think, the seminal stock of the social media era, Facebook, has yet to trade a single share in the public market. One can only imagine how much pent-up demand there is from mutual funds, hedge funds and retail investors for stock in this company that has established the default identity system for what will soon be over 1 billion people around the world. One could argue that the value of this resource on a macro economic basis is commensurate with that of oil (ie Exxon Mobil) or of the two primary computer operating systems (Apple and Microsoft), and that the “mature” value of Facebook in 2012 might be closer to $300b than $30b.

And yet, against the breathlessness of what might be, is the reality of what once was. All we need to do is look at the Nasdaq chart from the 1998 Russian financial crisis through the dot com bubble of 2000 to give us pause:

nasdaq201021

Although I am not a market technician, my spider sense is tingling. The wheels of capitalism are back in motion, and liquidity is flowing from the top to the bottom of the cap structure. University endowments are trying to distinguish deal flow quality from the PayPal mafia versus the Xoogler community; Web 1.0 bankers are reuniting to capitalize on the coming Web 2.0 IPO liquidity, and startups with big ideas, hockey stick user growth, but relatively little revenue, are commanding eight figure Series A valuations.

Markets tend to overact on the way up and on the way down, so we may well see an extended period of bullishness over the coming months or even years. The Nasdaq has another 100% to go before it gets into the same trough to peak range we saw 10 years ago. The bubble needs to wait for companies like Facebook, Groupon and Twitter to transition from privately held to publicly traded before bursting. But burst it will, as it always does. Not before, however, some very fortunate entrepreneurs, investors and bankers make out with new fortunes.

In light of all this, it hadn’t occurred to me until now how uncanny my experience last Saturday night was. Tina and I ventured out from Marin into SF to join Kara Swisher and Quincy Smith for what we thought was going to be smallish dinner honoring Bob Pittman. Yes, that Bob Pittman. The one who, along with Steve Case at AOL, bought Time Warner. The one who made us all shake our heads in amazement that Monday morning ten years ago. As we walked into the back room of Tres Agaves, we quickly realized that this was no small dinner party. There had to be at least a hundred friends and colleagues milling around: Google execs, angels, VC’s, Public and startup CEOs. Everybody was enjoying the open bar and free flowing conversations. As I made my way to the back, to take a breath, there was Bob Pittman, off to the corner, looking fit as ever. The only noticeable difference was a fresh shade of sandy gray stubble matching his sandy gray hair. Every few minutes, somebody would venture up to him and shake his hand and reminisce about the last time they met. The younger startup folks seemed to have no idea who he was and were more concerned with putting together their tacos from the cart. Little did they know, however, how much their future will be shaped by his past.

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Chris Wareham