Komisar believes there is evidence of new bubbles occurring in certain industries today, specifically in Web 2.0. The good news is that there are also many other industries, such as those in energy, life sciences, and healthcare, where bubbles are absent. He also gives advice on whether companies should seek institutional financing or professional investments.

Transcript



In the early days of the Internet bubble, it was said, and this is, I know, an oversimplification, but it was said that all you needed was a few PowerPoint slides and a half-baked business plan, and you would get lots of money. Then came the crash, and now to move forward to 2007, the world is awash with liquidity, even more liquidity than at the time of the Internet bubble. So my question to you is: Have we learned? Have you guys learned? Do you still look, conceptually, at business plans? And is it possible to start raising money that way these days, in the real world? And then summing all of that up, what is the best way for an entrepreneur to really start looking for serious money in your view, at the conceptual level, after two years of sustainability and amount of experience? What is it? So let's break that. They're both really good questions. Really good questions. We're clearly seeing another bubble in certain sectors today. Here's the good news: it's only in certain sectors. In the late nineties, it was everywhere. The entire market was bubbling up and ready to explode in all sectors. And the Internet was leading that. And in the venture business, we saw it everywhere. We are definitely seeing it today. We're seeing it in what we call consumer Internet today. Consumer Internet today, somebody can walk in with a couple of PowerPoints and a me-too idea and there's plenty of money to fund them. What's interesting about that is, in the late nineties, it was understandable why that was happening. There was a rush towards liquidity in the public markets. People didn't have to take any risk in the development of these ideas or products or companies. And they could cash out within a year or two for huge returns. Today, that's not the case. These Web 2.0, as they've been referred to, consumer Internet companies have no liquidity, other than YouTube, which created a big splash when it got purchased. And I would argue, Google may at some point question whether that was a smart thing to do. But other than that, we haven't seen big numbers out of any of the Web 2.0 companies. What we see is a different phenomenon. And that phenomenon is, we're seeing a lot of liquidity in the $50 million range. Outside of the venture capital area, in the angel financing area, where for a few million dollars, you can test an idea and see if they will come. Forget the business plan. The business plan is irrelevant in Web 2.0. And the reason it's irrelevant is, you can monetize these companies by selling advertising on Google. So Google becomes the platform for Web 2.0 business models. And all you need to do is see if, if you put yourself out there, if people will come. And if enough people come, you can then monetize them on the prospects of advertising and continued growth. And those companies in each category end up getting bought in these food fights that are being between Google, Microsoft, Yahoo and others, who feel like they need to have one of everything in order to stay even with each other. The gap though, is that it's very hard now to put $5, $10 million with a venture capital work in the consumer Internet world and have any strong conviction that you're going to find liquidity of a site. So it's a strange bubble, but we're definitely seeing a bubble in it. At Kleiner Perkins, we've done very little investing in consumer Internet and Web 2.0, very little for that reason. But your insight is right. Our peers are doing it like crazy, and it is creating some tensions. We're not seeing that in all markets. We're not seeing that in energy, we're not seeing that in life sciences, we're not seeing that in health care. We're not seeing that in enterprise security and Internet security. So there are lots of areas that we are not seeing a bubble in. But if you're talking about Internet consumer, you are right. Your second question, though, had to deal with when to seek institutional financing or professional investors. My sense is, there are two ways to look at that. And one, I understand, was discussed a couple of days ago, and that is: who do you need to help build your business? Forget their money for a moment. The good news about a lot of professional investors, not most, but a lot, is: they bring very relevant experience, ecosystems and connections to help you build your business. You may very well want one of those people to be a partner in your business with you. That's one reason to bring in professional investors. The second is, you see an opportunity for acceleration of your idea ahead of your business model, ahead of your ability to bring in cash flow and that becomes an imperative for building your business in a competitive environment. Those two things, I would look to as being the primary indicators, to me, of whether or not I was going to seek a professional institutional investor.

1. A Venture Capitalist Innovation Process
2. The TiVo Transformation
3. Innovation Advice from George Lucas
4. A Cautionary Word on the Deferred Life Plan
5. Necessity-Driven Entrepreneurship
6. Lessons Learned from Failures
7. A View On Industry Bubbles and Investment Partners
8. Optimizing Career and Life Opportunities
9. Different Entrepreneurs Excel in Various Company Stages
10. Skills Of Great Entrepreneurs
11. The Supportive Silicon Valley Ecosystem

Randy Komisar answer questions on Entrepreneurship for Stanford University students on March 3, 2007. Randy Komisar, a partner at Kleiner Perkins Caufield & Byers and author of the best-selling book The Monk and the Riddle, talks about how innovation occurs at Kleiner Perkins. Instead of giving projects a thumbs up or thumbs down, the firm uses a set of filters to review and improve these projects. Through this process of iteration, innovation and problem solving occurs between investors and entrepreneurs, he notes.