Some of the worst financing investments and merger and acquisitions took place during the dot com boom and bubble of 1994-2000.
Then, some time around March 2000 the Nasdaq stopped rising, reversed momentum and fell sharply from over 5,000 to about 1,200 in the years that followed.
Financings all but dried up, M&A lost some momentum, but as a result of the nuclear winter of 2001-03, a lot of very smart deals (for buyers) took place. When I published my Top 10 M&A Deals of All Time, VC Fred Wilson commented on that very specific fact:
“Seven of the eleven deals were done in the “Internet doldrums” of 2001-2004. It will always be true that the best time to buy is when nobody else is buying.”
Times have changed, but the more things change, the more the stay the same.
In 2000, things blew up because public market investors were financing bad assets. These bad assets were basically nominal assets such as shares, printed on a piece of paper. A piece of paper exudes confidence in an underlying asset. In 2000, those pieces of paper were in fact companies that were worthless: Pets.com being the poster boy but just one.
Today, in 2008, things were due for a shakedown because of loose money and a real estate bubble, but as we highlighted before, real estate is very different than a stock market bubble because the assets are real, both literally and figuratively.
I personally think (conspiracy time folks) that the lenders and financial giants who are now getting nailed by writing off billions of loans are re-capitalizing themselves by selling chunks of equity to foreign investors not only to survive and succeed in decades to come but because they want to get ready to scoop up asset, soon. One example of this is Bank of America just agreed to buy culprit Countrywide for $4B. Four billion dollars.
I anticipate many people with stronger balance sheets in financial circles to welcome this correction because it gives them far more purchasing power. But more on this in a second.
If you go through the motions, any slowdown in offline advertising (which is not targeted, tracked or timely) will be a positive to online advertising, and in turn, digital media (much the same way that net-net, a strike in Hollywood helps digital media companies).
As a result, while we agree and expect the credit situation to affect the economy in the months to come, we disagree with the following, taken from Henry Blodget’s blog at Alley Insider:
We expect advertising spending to start slowing (or even dropping) within a couple of months. We think all the major Internet and media companies will get hit. We agree that Google will likely do better than display- and US-dependent companies, but “doing better than others” is not the same as “doing well” (at least not as far as stock prices are concerned). We expect the downturn will dampen VC and angel financings, which, in turn, will dampen entrepreneurial activity. So we continue to suggest that digital business executives brace for harder times.
So why is Blodget so negative? Bear in mind, I think for Blodget to return to his roots as a writer (what he did before being an analyst) is a great thing. But I always wondered why someone who was so bullish on the Web is now so bearish.
Let the conspiracies begin: One reason, we suspect, why Henry Blodget is so vocal on the negativity is because that Silicon Alley is backed by successful entrepreneurs Kevin Ryan and Dwight Merriman (who sold Doubleclick to Hellman & Friedman) and are active investors in the space (not just in Silicon Alley Insider, but also Panther Express and many other digital media companies).
As investors, Ryan, Merriman and by extension Blodget want the value of their assets to be as high as possible, but all in all, they are more buyers than sellers in my eyes, so they probably welcome anything that knocks the air out of some of the privately held companies that they look at day in, day out.
I’m not saying this to criticize any of the three gentlemen, I am simply highlighting that anything you read in any publication (including this one) is usually somewhat self-serving to some extent.
Caveat emptor indeed.
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