How tech got its groove back: after the dotcom bust, the tech industry is picking itself up and dusting itself off for another dance—with the help of some innovative entrepreneurs

Entrepreneur, June, 2004 by Amanda C. Kooser

Cautiously optimistic. Those are the words you hear, from Silicon Valley to New York City, when you ask about the mood of the technology industry today. From young startups to old pros, everybody is looking hopefully forward while keeping one eye on the pitfalls of the past. And in the thick of it all, entrepreneurs are lighting the way with solid business plans and a careful attitude toward funding.

OK, now brace yourself. Internet companies are making a comeback. Not money-burning dotcoms as we knew them, but businesses like CertificateSwap.com, an online marketplace for buying and selling gift certificates. CEO Cameron Johnson is a veteran of more than a dozen ventures. He's also 19 and living in a dorm at Virginia Tech. Internet entrepreneurs are a diverse bunch these days.

These new companies aren't whooping it up with indoor basketball courts and lavish launch parties in expansive office buildings. CertificateSwap.com doesn't even have an office. "I've got a Web designer in India, another one in the Ukraine, and one in the Netherlands," Johnson says. "My programmer is in New Hampshire. I've got two people [who] handle customer support out of California." And he still hasn't actually met his partner and co-owner, Nat Turner, a 17-year-old living in Texas. Says Johnson, "The Internet allows you to create these virtual corporations."

NEW ATTITUDE

The Internet, which spawned so much excitement during the boom and are up so much capital during the bust, has evolved into an entity that entrepreneurs use to enable new--and more sane--business concepts. Many of these startups, CertificateSwap.com included, are just saying no to VC funding. "We'd rather have a smaller company and be profitable," Johnson says. His venture is entirely self-funded. With no central office or inventory to maintain, the no-VC approach works for his business.

Fortunately for those entrepreneurs actually seeking outside funding, VCs are showing signs of coming out of hibernation. They're still a little gun-shy after the bust. But that has manifested itself in a more careful approach to choosing which companies to fund. Mark Oster, management advisory services partner with Grant Thornton in New York City, has been keeping an eye on VC movements. "Funders have moved the goal posts back," he says. "They're not going to fired until there is a demonstrated product or service, revenues and customers." That may sound like common sense, but it typifies the new stance VCs are taking toward technology companies.

One business that has passed muster under the eyes of VCs is BitPass (www.bitpass.com), a micropayments company in Palo Alto, California. The company has logged $1.5 million in series-A funding since starting up in 2002. CEO Kurt Huang, 33, is co-founder along with chief technology officer Gyuchang Jun, 32. Their story echoes the experiences of so many Internet boom startups, but with some important differences. The founders were both Stanford students working on degrees--the proverbial two college kids starting a dotcom. But don't call BitPass a dotcom. It's actually a software and services company. Micropayments have been done before, but not with the mix of user-friendliness, flexibility and good timing that BitPass brings. (On a side note, BitPass is great news for Internet entrepreneurs who are looking for a way to accept scads of small payments for content or services.)

Guy Kawasaki, CEO of Garage Technology Ventures (www.garage.com), sees the potential for BitPass' success. Garage is one of the firm's chief funders. Kawasaki has helmed Garage for five years and has seen a lot of swings in Silicon Valley. He sums up the changes since the bust this way: "Back then, all you had to be able to do was PowerPoint. Now you need to do PowerPoint and Excel." Though VCs are emphasizing the need for proven technologies, proven leadership teams and watertight business models, Kawasaki says there's still room for technology entrepreneurs who don't necessarily fit the new mold. Just look to history: Companies like Apple Computer, eBay, Google and Microsoft defied convention, and they won't be the last.

So are we in for another technology boom? The answer seems to be a resounding "sort of." Kawasaki calls it a "boomlet." Huang says one sure sign is that parking around Palo Alto is getting tighter, and office vacancy rates are slowly dropping. He calls it "the boom without the bust and with the revenue model." And we're back to that sense of cautious optimism. There are certain technology sectors that are looking pretty rosy right now. Nanotechnology still has a lot of buzz, but it's in extremely early stages. Wireless, security, enterprise software and e-commerce are often mentioned as hot areas. (See "Grow With the Flow," above, for some growth statistics for these sectors.)

GENERATION NEXT

Now that we know technology businesses are rebounding, we turn to look at where all the innovation is coming from. You'll get different answers depending on whom you ask. Some say older, experienced entrepreneurs are behind most of the startups. But as Johnson shows, there are still very young entrepreneurs launching companies. And as the BitPass founders show, there are still recent Stanford graduates helming their own tech ventures. Being located in Silicon Valley isn't necessary, either. As Johnson and CertificateSwap.com show, you don't even necessarily need an office.