TCS Daily

The Kids Stay in the Picture

By Dominic Basulto - September 29, 2003 12:00 AM

The past three years have been tough on the Under 30 crowd, especially that subset of Internet-savvy whiz kids who taught America to buy books at Amazon, find information on Yahoo, and trade collectibles on eBay. Once acclaimed as the new Masters of the Universe and the creators of the nonstop party known as the New Economy, the dot-com entrepreneur of the late 1990s has been in hiding since mid-2000. Business magazines no longer lionize them. Venture capitalists no longer give them millions of dollars to test new ideas. Stock option wealth has all but disappeared. While once it was fashionable to "Never Trust Anyone Over 30," the opposite has become true. Now it seems that the rallying cry of '60s counter-culture youth has been inverted: "Never Trust Anyone Under 30."

There are signs, though, that the optimism and innovation that characterized the Internet era may be returning. The San Francisco Chronicle recently profiled a group of battle-hardened thirtysomething Internet entrepreneurs who are now being assiduously courted by venture capitalists. The VC industry is now rife with rumors that the balance-of-power between entrepreneur and venture capitalist is shifting. Instead of encountering down rounds, anti-dilution provisions and multiple liquidation preferences, high-profile start-up companies are now negotiating from a position of strength -- and receiving multiple term sheets from investors. Venture capitalists are on the brink of rushing, herd-like, into hot areas that they barely understand, such as Wi-Fi, Web services, grid computing and social networking. In short, the money spigot is once again flowing. In 2Q 2003, VC funding for seed- and early-stage start-ups increased by 44%, compared to the previous quarter, to $588 million.

Best of all, the business and technology press is once again shining the spotlight on super-achieving thirtysomething entrepreneurs. Business 2.0 has a story on the "Baby Bills," the next generation of fresh-scrubbed, hyper-intelligent technologists at Microsoft who are being groomed to replace the original fresh-scrubbed, hyper-intelligent technologist: Bill Gates. MIT Technology Review has a 52-page spread dedicated to 100 innovators under the age of 35 -- including several who are members of the elite 20/20 club (raising $20 million or more in VC financing while still in their 20's). Despite the tech downturn, each week brings new speculation about emerging technologies and more stories about pre-IPO companies with quixotic names -- Friendster, Groove, Blogger and Google.

Is it possible, then, that there is a second generation of Internet whiz kids on the way? There are two schools of thought on the matter. One school of thought, epitomized by Microsoft and Oracle, holds that the technology industry is now in a mature phase. The days of double-digit growth are over. It's time to focus on ROI, business processes and industry consolidation. Forget about stock options and disruptive technology -- it's time to hunker down and prepare for grind-it-out 4% annual growth. The other school of thought, held by a growing number of technology insiders, holds that Silicon Valley is a marvelously self-adapting beast that has withstood a number of competitive challenges in the past and has emerged stronger each time. Innovation starts and ends with young, aggressive start-ups that launch in garages, dorm rooms, and incubators.

There is something reassuringly American about the continual appearance of twentysomething youngsters with an entrepreneurial zeal to change the world. Other countries -- Germany, France, Japan -- have tried and failed when attempting to bottle this distinctively American trait. After all, how do you teach someone to build a homemade Wi-Fi network out of a Pringles can and aluminum foil? How do you force people to subsist on a diet of Doritos, Mountain Dew and Twinkies while developing the next great software company? During the 1990s, Internet entrepreneurs thought outside of the box. Now, they are inside the box -- the penalty box.

The upheavals experienced by entrepreneurs in the Internet sector can best be compared to those of another stomach-churning roller coaster industry: Hollywood. As the best-selling book, "The Kid Stays in the Picture," makes clear, the path to success in Hollywood is littered with a strange mix of media insiders, jealous rivals, shadowy godfathers, nepotistic cronies and wealthy financiers. The same is true of the Internet sector -- a nod of approval from the right insider, the right buzz and billions of dollars of untapped capital have strange ways of making things possible. The question, though, is whether the ranks of 30-something entrepreneurs are right for the role of leading the next wave of growth in Silicon Valley. Given the ability of Silicon Valley to reinvent itself over the past 30 years, it's a good bet that they are. It is now up to the Internet producers and directors -- the venture capitalists and investment bankers -- to decide whether these Internet whiz kids stay in the picture.


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