In 2002, in the darkest days of the .com nuclear winter, after many companies collapsed loads of software engineers were left hanging out at Starbucks. Big company executives who imagined immense riches as part of the next Netscape packed their bags and left the Bay Area. Some made it back to the East Coast and become mortgage brokers.
Around the same time, the glory days of financial engineering started heading to new highs.
How times have changed. In 2008, the start-up world is humming again, fueled by venture capital funds raised on liquidity events of 2006. Meanwhile, the financial system that created massive bonuses for traders, bankers and hedge fund managers, seems on the brink of collapse.
Why the dichotomy here? Conventional wisdom is that venture capital investing lags the real economy by 6 months or so. This is because VCs typically don't directly feel how bad things are until results start showing in their portfolios. At that point, they have to increase reserves for follow-on investments and plan to sit longer on boards of companies that can't sell or go public.
If you're planning to raise money, do it now.
The current financial crisis is much bigger than the .com fallout. It affects every corner of the economy. Banks rely on the trust of consumers to keep their money safe. Banks also rely on the trust of other financial institutions to maintain liquidity. There were lots of charlatans who thrived in the .com boom, but it's becoming clear that the scale of the mortgage-backed house of cards is larger than anything Enron invented.
How low will we go nobody knows.
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