Some venture capitalists expressed concern at the high valuations investors are placing on unprofitable Internet companies at the Nationsbanc Montgomery Technology Week in San Francisco on Wednesday.
Walter Kortschak, general partner at Summit Partners, said: ?We?re one of the few [venture capital] firms that don?t participate in the Internet start up game,? adding jokingly: ?We?re left investing in mundane, profitable companies.?
John Shoch, general partner at Asset Management Associates, however, said he had no qualms about admitting that his firm was ?perfectly happy to invest in companies that have no revenues and no profits, if we think it will have a positive outcome for us.?
But he worried that many Internet companies were not really technology companies at all, but media companies instead. ?They lack a market leading, proprietary technology that will guarantee them growth and profits,? he said.
Another risk factor was competition from too many similar start ups. ?There?s too much [venture capital] money, and if someone has a good idea, suddenly there?s three other companies doing the same thing, and it ends up with all four of them losing money,? he explained.
As a result, ?there?s no left brain analysis that accounts? for Internet company valuations, and ?what goes up must come down.?
But, he concluded: ?I sure hope all my companies have gone public before that.?
Sabeer Bhatia, Microsoft?s general manager of strategic business development, also agreed that Internet companies were overvalued. He is responsible for Microsoft?s Internet acquisition policy, and said that Microsoft was ?completely staying away from pure content players.?
But the panelists also hinted as to their success formulae.
Kortschak said that Summit Partners liked to invest, not in the hottest new Internet technology, but in those companies that help customers implement it. Specifically, he is on the lookout for organisations that can implement ecommerce solutions.
?That way, you don?t have to bet on one technology or platform,? he explained, while he added that the ecommerce applications market was growing fast and was still very fragmented, with no player exceeding 10 per cent market share.
Kortschak and Bhatia also agreed that the emergence of broadband Internet access may create new opportunities. Companies who use the extra bandwidth to significantly enhance users? Web experience may be future winners, they said.
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