Leading Internet Indicators: Porsches, Real Estate

SAN FRANCISCO (04/24/2000) - Visiting the Porsche dealership in Palo Alto is the Sunday act of faith for Silicon Valley's true believers. And the Sunday after the Nasdaq's Big Dip, Carlsen Motor Cars was as busy as ever. Ron Burton, a Carlsen veteran, was in an upbeat mood, having already booked several sales that morning. Burton had endured a steep drop-off in sales in the early 1990s, when Apple Computer and the rest of the Valley tanked. He had suffered a slew of cancelled orders after Netscape's 1996 crash.

Yet even with the Nasdaq down 34 percent from its March 10 high, the wait on a $112,000 Turbo Porsche would still be more than six months. As the New Economy's most fervid proselytizers are forever reminding the world, the Internet has changed everything. And apparently not even a stock slide, even one so steep that some of the Internet's highest-flying stocks fell by 70 percent or more in just a few weeks' time, is going to shake their faith. From the industry's star VCs to its least known entrepreneurs, the faithful may be able to imagine the pain suffered by the Other Guy, but they acknowledge no pain of their own. When asked to assess the mood of their companies in light of the Nasdaq meltdown, CEO after CEO explained why so steep a decline in their stocks was actually a good thing.

Typical was Brian Charlesworth, a Utah-based entrepreneur who had the unfortunate timing of seeking venture funding just as the Nasdaq began its precipitous decline. "I'd be worried if I was the typical dot-com with the typical dot-com business model," Charlesworth said bravely. And though he acknowledged his company is seeking "the typical portal revenues," he also had a long explanation of why his company, Talk2, is hardly typical. "I think this market correction will be really, really good for us," Charlesworth said.

"Potential funders will be able to distinguish between our company, with real revenues, and other companies."

On Friday the Nasdaq dropped by 9.7 percentage points. That Sunday the open houses in Silicon Valley and San Francisco were a little quieter, everyone a tad more subdued and distracted, But people were still buying. Some, like the bargain hunters who would jump into the market early that next week, hoped sellers would cut their prices. "Don't hold your breath," said Dorothy Gurwith, a realtor at Coldwell Banker, to a potential buyer who was looking for a deal on a one-story, three-bedroom bungalow in Palo Alto, offered at $988,000.

Inside the industry, evangelists have reinvented themselves as realists - sort of. The new gospel dictates that CEOs and VCs alike declare that the market has been overvalued all along: a correction will only make our strengths that much more obvious, a correction will distinguish the real players from the pretenders.

The walking wounded who attended Monday's "eretailing 2000" conference in San Jose were so fiercely determined to offer this view that it wasn't clear who they were trying to convince, their customers or themselves. There was some good old honest gallows humor that revealed true fear. But typically those comments were offered as 'please-don't-quote-me-by-name' asides. A former Organic employee, holding options that may or may not be worthless (Organic was trading at $15 a share midweek, down from a $39 high), joked that he may have to wait longer than expected to buy that Mexican hacienda.

And there was a father of two who had recently left a secure job at an established corporation to take a flyer on a startup. In a candid moment, he bemoaned his recklessness, mourning the dream of a college fund that prompted him to take the plunge but may never materialize. Everywhere people searched for silver linings, like the employee at Razorfish, the web design firm, who saw only good news in a decline during which his company's stock fell by 77 percent in two months. "I'm glad to see this happen, actually," he said on Monday. "Maybe now our clients will be a bit more realistic when they come to us with project proposals."

Ask Jeeves was down nearly 80 percent from its high earlier in the year but Jessica Hoffman, the company's director of marketing, shrugged it off. "My friends pay more attention to the stock price than I do," Hoffman said. "Who's going to talk on the record about their fears?" a prophetic overseer of an Internet incubator in the Valley had said on the day of the big dip. "Sure, people are scared, but on the record they're going to tell you that everything's fine."

Two weeks into the Nasdaq's steep slide from its mid-March high, Boston-based b-to-b Breakaway Solutions' CEO Gordon Brooks sent an e-mail to every person in the company (just as he had sent around an e-mail counseling a muted reaction when the stock soared into the stratosphere). "Just remember ... it's a marathon, not a sprint, and everyone associated with Breakaway will be rewarded for building a great company," he wrote.

Breakaway's stock fell from $81 to $35 over the next 10 days, and on Tuesday morning, Brooks couldn't have been more upbeat. "The market is going to look at good companies with solid business models and reward those companies," Brooks said. "I consider us one of those companies." He went on to say that he believes recent events will actually help a company like his attract and retain employees.

"People now recognize that not just any company can IPO. People will be more circumspect, they won't be as quick to leave for the next IPO." Perhaps, but a more circumspect attitude was hardly in evidence Tuesday night at an event sponsored by the MIT/Stanford Venture Labs. Here 200 or so of the Valley's moguls-in-waiting gathered in an auditorium on Stanford's campus to hear advice on going public from a panel that featured an entrepreneur whose stock was down 83 percent from its high. Before the event, a couple of the entrepreneurs who spoke with the Standard acknowledged their lousy timing. But most were already proving themselves Internet-ready by faithfully seeing only good news in what the pundits and analysts alike were calling "carnage."

Raj Kanodia, president of eNuntio, a two-year old technology company in San Jose, argued that the market decline was "good for my company. Our investors have been pressuring us to rapidly IPO. Now I won't have to worry about that."

Stephen Roth, founder of a five-month-old site called AskAnything.com, referred to the Nasdaq's precipitous decline as a "little glitch." He was on campus to make the connections that would help him raise funding, but he brushed off questions about his timing. "I have absolutely no fear," he said.

If money talks, maybe people should listen to a waiter at the Silicon Valley hangout Buck's in Woodside. People were still window-shopping for Porsches, but he calculated that his tips were down over the previous two weeks. There's pain out there, but for the moment only the hired help know for sure.

Reported by Diane Anderson, Jennifer Couzin, Dan Goodin, Hane Lee and Jonathan Rabinovitz.

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