Magazine article Newsweek International

Back to the Bubble

Magazine article Newsweek International

Back to the Bubble

Article excerpt

Byline: Daniel Lyons

Remember the crazy dotcom bubble in the 1990s and the bust that followed? We may be about to sit through that movie all over again.

That's what the venture capitalist Fred Wilson has been saying. "When I look at where we are right now, it reminds me so much of 1999 and frankly it scares me," Wilson wrote recently on his blog. His fear is understandable. In 1996 he cofounded the New York venture fund Flatiron Partners, which did booming business investing in Internet companies--until the bubble collapsed. Wilson and his partner pretty much shut down Flatiron in 2001, while still helping to manage some of its portfolio companies that had survived.

Undaunted, he and a different partner launched Union Square Ventures in 2005, and he's riding high once more, with investments in hot Web companies including Twitter, Foursquare, and Zynga. Nonetheless, Wilson is nervous. He says too many investors are pouring money into Web-based startups, driving valuations to ridiculous heights. The rule of thumb used to be that a company with two or three employees would be valuedat $5 million or less. But today "we're seeing two- and three-person teams that are getting $30 million, $40 million, $50 million valuations," he said at a Web 2.0 conference in San Francisco last month.

Wilson doesn't want to name names. But you can find some pretty wild deals without looking too hard. Quora is a new Web site where you can ask questions and get answers. In its first round of funding it was valued at $86 million, according to TechCrunch, a blog that tracks Silicon Valley startups. …

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