MARCH 2001

Like many internet entrepreneurs, I suspect,

I am re-reading Burn Rate, the account by Michael Wolf of his adventures in the early internet years. Wolf, formerly and now again a journalist, was briefly in the mid-1990s an internet entrepreneur.

Most people have forgotten that the internet bubble burst once before, in 1997, when Yahoo! traded down to a value of $300 million and analysts questioned whether internet companies would ever make money. Burn Rate is set during this trough. And it is as dismally appropriate to the mood in early 2001 as The New New Thing, Michael Lewis’s book about hyper-entrepreneur Jim Clark, suited the exuberance of a year ago. Burn Rate is the more educative book, with lessons for the naïve entrepreneur that are as powerful as they are obvious.

First, internet businesses can be as miserable as any other small business. During the internet boom, capital was on tap, like free beer at a party. Entrepreneurs could play table football, and brainstorm. From The New New Thing, one would have thought that business was about changing the world, one sector at a time.

The backbone of Burn Rate’s plot is the race to raise investment, with seven weeks to go before the cash runs out. Wolf’s account of his presentation to an investor conference, a façade of confidence hiding growing panic, makes me anxious just reading it. And it’s a particularly relevant story now. One of our partners, a small firm with strong technology, had those ambitions. But it is out of cash. The founders are physically worn. I doubt they sleep. They cannot meet the next payroll.

The lesson: most internet businesses are small businesses, and as such are usually just a step away from bankruptcy. And that is no fun.

Second, venture capitalists are not always your friends. Wolf’s lead backers, Patricof in New York, dug up clauses in their investment agreement to squeeze Wolf out of the company. At the time I assumed it was because they were New York financiers, and sharks by definition – true technology investors were collaborative and supportive. Now I realise that investors are creatures of the markets. For all the rhetoric about long-term, through thick and thin, many act more like mezzanine investors, calculating the likelihood of a successful IPO rather than the intrinsic value of a business. With the markets frail, these VCs are under pressure – their ruthlessness is a function not of personality but of the market.

The latest fashion is liquidation. Some VCs are examining their portfolios not for companies about to run out of cash but for those with cash

in them, so that they can be liquidated. That way, the last-round investors recoup much of their commitment, whereas the founders, employees and angel investors make nothing.

The founders can obstruct this process in court, and sometimes the investors buy their acquiescence with a small cash payment. In a recent case in Silicon Valley, the VCs dealt with opposition by putting in a chief executive whose role was to cut back to the point that liquidation was inevitable.

Third, there is life after the internet. At the end of Burn Rate, Wolf walks away from the company. As a writer, he is more successful than ever, trading off his very failure.

Finally, sometimes an internet entrepreneur should just hang in there. Wolf does not regret abandoning his internet venture, but he left with nothing. If he had waited six months, he would have made eight figures. He gave up just as market sentiment turned.

At Moreover’s office in San Francisco, we await a connection from Cogent Communications that will bring fibre-optic cable into our network. High bandwidth, finally.

A long-time sceptic of the internet on mobile phones, I recently bought a PC card that slots into my laptop and gives me wireless access to e-mail and the web. The service, from Ricochet, is faster than a dial-up connection. If I am an example to go by, Ricochet users spend all their working time online.

I have been buying scanners for the past five years, in the hope that I can get rid of paper files. The scanners, not quite fast or practical enough, sit and gather dust like the paper documents that I can never find when needed. Now Hewlett-Packard has brought out the Sender, a high-speed scanner that connects into our network in San Francisco. The paperless office is within reach.

And the lesson? Analysts, entrepreneurs, established companies and commentators are all giving up on the internet just as it is beginning to realise its potential. Walking away, like Wolf, may not be the end of the world, but there will be rewards for those who hang on in there.