Speakers:

Robert Buderi, Editor-at-Large, Technology Review, MIT (Cambridge)

Sanford Climan, Managing Director, Entertainment Media Ventures, LLC (Los Angeles)

John Hagel III, Chief Strategy Officer, 12 Entrepreneuring (San Francisco)

Yossi Vardi, President, International Technologies (Tel Aviv)

Albert S. Waxman, Founder and Senior Managing Member, Psilos Group Managers, LLC (New York)

Moderator:

Joan Hamilton, Columnist, Business Week (San Mateo, CA)

Summary:

History doesn′t repeat itself but it definitely rhymes, stated John Hagel, making reference to the euphoria that led venture capitalists to invest in all sorts of ideas that promised big, fat and fast returns. Several factors that converged in the market in the late 90′s are mostly to blame.

First and foremost, with the advent of the Internet and the introduction of new and better technologies by the day, stories of how it would revolutionize the way business was being conducted would lead to massive restructuring which in turn would lead to increased efficiencies and productivity gains, proliferated. These promises of newer and better business models drove investors to rapidly increase the influx of money going into venture funds, with this amount growing by a factor of 2.5 times in the 1998-1999 period. Quite conversely to what people would believe, this increasing inflow of funds created new challenges for the venture capital industry; now it needed to recruit new talent that it could dedicate to finding new deals and screen through them to identify those that were promising. Unfortunately for venture capitalists, talent, and especially good talent was not easy to find, let alone retain, creating a bottleneck in the investment decision process.

These circumstances - coupled with the increasing appetite on Wall Street for new hot technology firm IPO′s - led venture capitalists to shift from investing in sound business ideas to funding any type of "business plan" that could potentially be taken to market in no more than nine months after being funded. However, the rapid decline of the stock market since March 2000 and the "dry-up" of the market for IPO′s, has forced venture capitalist to retool their strategy and readopt more traditional ways of evaluating investment decisions, that is, using metrics that make sense.

The panelists later discussed what they predicted could be the next "hot sector." Albert Waxman argued that one of the sectors that is ripe for taking advantage of new ideas is healthcare. As private companies, who pay for or subsidize the cost of insuring over 150 million Americans, continue to face rising insurance costs, pressure continues to grow on healthcare plan managers to reduce their prices. Waxman further explains that reducing the costs associated with the highly inefficient reimbursement processing system is one of the best ways to accomplish these cost reductions. Here is where an opportunity for new entrepreneurs lie, and where he believes venture capital will make funding available. On the other hand, Sanford Climan sees opportunities for entrepreneurs in the creation of delivery platforms for content. He sustains that those who are able to provide consumers with the right combination of content, and more importantly, able to create a revenue stream from paying consumers, will be able to capitalize on the available technology. He further sustains that the key driver for success for these new content providers will be the creation of the right partnerships with content owners that will allow entrepreneurs to deliver a content mix for which consumers are willing to pay.

Regardless of the product or wave of the future, one of the underlying points that was continuously reinforced was the need to create revenues streams directly from the consumer. As many of the dot.coms have already proven, a business model that can′t extract value from the consumer is not sustainable in the long run, and therefore fundamentally flawed. Wall Street has once again opened its eyes to this reality and cut financing off to business models that seem to be designed for socialist economies, not a capitalist one. Investors demand returns.

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