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Innovation Economy

Feels like another tech bubble is on the horizon

Toymail would allow distant parents to converse with their kids through wirelessly-connected toys.
Toymail would allow distant parents to converse with their kids through wirelessly-connected toys.Globe photo/Scott Kirsner/Scott Kirsner

NEW YORK — I was walking around an expo touted as the “world’s largest startup event” last month, when I started to have flashbacks to the late 1990s. At New York TechDay, there were so many booths staffed by so many eager entrepreneurs pitching so many ideas that only needed a few million bucks and a few million users to become a real business.

There were startups enabling women to summon a hair stylist to their apartment using a mobile app or rent designer clothing they don’t wear much to other women. An MIT Media Lab alumna was urging people to pre-order wirelessly-connected toys that would let distant parents send voice messages to kids at home.

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I lost count of the companies offering new ways for consumers to accrue loyalty points when they buy stuff, or reinventing the cash register for merchants.

“Yeah, you do see a lot of redundancy,” admitted Ajit Verghese, a former Bostonian now working in Manhattan for Dash, a mobile app that lets diners pay their bill with a smartphone.

Redundancy is not a bad thing in itself. “The Jazz Singer” was not the first time someone tried to create a talking picture, and Facebook was far from the first social network. But the intense speciation we’re seeing — the biologist’s term for the creation of lots of new species — is typically followed by mass extinction.

In the late 1990s, everyone was energized by the limitless potential of the Internet and e-commerce. Today, it’s the limitless potential of smartphones, 3-D printing, and cloud-based services.

At TechDay, a wine app called Crushed was hoping to raise $500,000, or maybe $1 million, to help users remember the wines they liked and later buy them. A similar app in San Francisco, Delectable, raised $3 million last week, and a similar app in Boston, Drync, raised $2 million last month. Yet another wine app based in Boston, Likelii, raised $450,000 back in 2012, but its app is no longer available and the two founders have moved on.

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While stock markets aren’t allowing companies to go public at the same storming-the-barricades rate of the late 1990s (remember Webvan?), venture capital investment into software startups has reached the highest levels since 2000, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report. I am starting to see a lot of people leaving well-paid, white collar jobs to create mobile apps and websites. At breakfast with a venture capitalist earlier this year, I was told that I was an idiot not to ditch journalism and raise my own small “seed” fund to invest in promising startups. Maybe so.

People who rode this roller coaster before will tell you that “a lot of things are going to disappear or die, or never get going beyond their initial round of seed funding.” That’s Jim Savage, a venture capitalist at Longworth Venture Partners in Waltham; he sold a startup called PlanetAll to Amazon in 1999.

Savage says he sees startups scrambling to raise more money, with the only other options to turn out the lights and try to sell their assets — or maybe get “acqui-hired” by a bigger company hungry for talent.

Many in this new generation of startups will find it tough to scale up beyond a single city or an initial set of customers, says Todd Dagres, founder of Spark Capital in Boston. “It will be hard to build a profitable company,” he says. Dagres backed one of the most successful IPOs of the dot-com era, Akamai Technologies, and his firm more recently was involved with Twitter, Tumblr, and Wayfair. “Winter is coming,” Dagres warns.

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In early 2000, Paul Schaut was running an online advertising company in Andover, Engage Inc., “floating at the top of the bubble, with a $12 billion market capitalization for no reason.” That didn’t last. Engage went bankrupt and sold its assets in 2003 for about $2 million. In the dot-com era, Schaut says, public markets had let in “any company that could pass the fog-in-the-mirror test.”

This bubble, Schaut predicts, will end with “deflation instead of a pop.” Once again, he says, many people who jumped into startups will “have to go back and get a real job.”

I hope I don’t sound like I’ve suddenly gone sour on entrepreneurship. Most good things in the world happen because of risk-takers. But not everyone is cut out to be an entrepreneur, and not every idea can become a viable business. We’re at a moment when many people — including investors — seem to be ignoring those facts. Billion-dollar acquisitions by Facebook, Google, and others can be blinding.

The upside of this startup boom will be new infrastructure that will continue to support entrepreneurship after the tourists have gone home. The very best accelerator programs, crowdfunding sites, investment firms, and shared office spaces will endure — like restaurants and hotels that figure out how to stay open through a summer town’s off-season. But many won’t.

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Starting with the Nasdaq’s plunge in the spring of 2000, the end of the dot-com era felt like the end of the Hindenberg’s trip to New Jersey. Investors got hurt, companies vanished, and anyone selling technology and professional services to dot-coms suffered painful losses.

Have you ever been at a party where hundreds of Chinese sky lanterns were launched, each with a small candle lifting it into the air? Fewer people may get hurt this time, but the best case scenario will resemble what happens to those lanterns.

They disappear from sight, candles flicker out, and they gently settle down somewhere in the darkness. Every party has to end.


Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.