Easy Dot Com, Easy Dot Go
A financial earthquake shakes the confidence of the Internet class
Ann Hamilton remembers when she caught dot-com fever. It was last summer. Internet stocks were rocketing skyward like rapid-fire missile launches; almost anyone with a Web-related idea, no matter how zany (ever hear of Bunions.com?), could raise millions; and IPO riches seemed almost as certain as death and taxes. Her friends, her former colleagues--indeed, just about everyone in Silicon Valley, it seemed--were all bolting from their jobs to join an Internet start-up. In fact, so many folks were taking the dot-com plunge that it no longer even seemed risky. "It just seemed like the natural thing to do," she says.
But Hamilton, 31, didn't strike it rich. Instead, she got five months of stomach-churning aggravation. After her first week, she got laid off. "So I packed up my desk and started to leave, and my CEO chased me out the door saying, 'Guess what? We just got more money,' " Hamilton recalls. The ups and downs continued--"I was laid off three times"--until the company, a high-end stereo equipment E-tailer named AudioCafe.com, finally folded in February. Her options are totally worthless, of course--AudioCafe.com never got close to an initial public offering. And the company still owes her several weeks of pay, she says.
Hamilton now plans a career as a professional photographer. In retrospect, she says a big clue that something was amiss came on her very first day, when the company's CEO claimed he didn't have the money to buy her a cup of coffee. "But I was so dot-com happy that I was willing to dismiss anything that might indicate this wasn't the path to take. I had dot-com dollar signs in my eyes."
She and countless others. But much to the quiet pleasure of the optionless masses, the dark side of start-up life is starting to get a lot more attention these days. Profitless companies that once boasted stock market values exceeding that of Fortune 500 corporations are suddenly running out of money--fast. Investors, both public and private, aren't willing to sink any more cash into them; and employees, whose loyalty can make or break a company on the edge, are growing more impatient by the day.
Like Hamilton, most dot-com workers gave up stable jobs for the excitement of joining a Web firm, not to mention the potential riches of huge stock option packages. Now, instead of planning their early retirement, many are wondering how long they should wait before jumping to a start-up with a better chance of success. Others are even considering a retreat--straight back to the warm embrace of the old economy.
The falling stock markets set this re-evaluation in motion. Though stocks rebounded last week after the horrific plunge on April 14, the main indexes are down for the year, with the Dow Jones industrial average off about 6 percent and the tech-heavy Nasdaq composite off 10.5 percent. Internet stocks fared far worse, falling almost 50 percent.
For two years now, venture capitalists and stock market investors had been happy to throw money at anyone planning a Web start-up. Last year, for example, venture capitalists provided some $20 billion in funding to roughly 1,800 Internet companies. Nearly 300 IPOs raised an additional $22 billion, according to research firm CommScan. But investors are finally coming to their senses. Just look at the stock prices. Virtually all of last year's IPO darlings are trading well below their offering price. Thirteen IPOs have been postponed or canceled since March 10--and analysts expect initial public offerings to fall off in the coming weeks and months.
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