The "Netscape Moment for Web 2.0" has come and gone?

Harking back to an article earlier today on the benefits of taking a break, Sarah Lacy has come back to TechCrunch with a rather good article on Web 2.0's possible "Netscape Moment", that time when Netscape, an 18 month old pre-revenue company IPO'd in 1995. As Sarah points out:

It was also Netscape’s timing: The IPO coincided with a greater democratization of stock market investing. It wasn’t the banks– it was the everyday retail investors flooding brokerages to buy a piece of a product they loved that caused the stock to pop so dramatically. And Andreessen was a symbol to every hacker or geek that you could move to Silicon Valley and build something huge (and get rich) in a matter of months– something that had never been possible in business before.

Put the two together and there was an irresistible new reality where a smart idea posting dramatic growth that a huge number of consumers loved could now operate by new company formation and liquidity rules. Was it any wonder a flood of new companies followed? Of course, everyone knows the inevitable happened next: Greed and latecomers pushed things too far, and we ended up with a dramatic crash that psychologically much of the Valley is still reeling from. (Don’t believe me? How many times this week have you read an alarmist report about whether or not the Dot Com Bubble is back?)

So here we are talking about it on our "Bubblewatch" section

Sarah's argument is that Web 2.0's moment was DST's £200m investment in Facebook 2 years ago:

Just as Netscape proved you didn’t have to be profitable or fully-baked to go public, Facebook has proved the inverse: That you don’t have to go public to get liquidity for investors, a huge marketing event, and cash to acquire competitors and keep growing. That you don’t have to go public just because the playbook says so. One was about pushing a wave of companies to surge towards an IPO faster; the other has been about giving permission to a wave of companies to put off the IPO as long as possible– but the two have been equally dramatic changes that have impacted the broader economy. Netscape gave Wall Street and investors a new high growth industry to pour money into; Facebook– starting with that first DST deal– has deprived the market of it. But because we were so conditioned to view the next pivotal moment in startup economics as an IPO, we continually saw these secondary deals as something leading up to that pivotal moment– not as the pivotal moment that changed everything itself.

.................

Some more parallels jumped out at me, the more I thought about the two moments:

Both had key enablers from outside the establishment. In the late 1990s four San Francisco-based boutique investment banks were the first to spot the potential of small tech IPOs that could get huge. The incumbent Wall Street vets missed it completely, obsessed with playing the old-economy game. This time around it was DST that was the outsider to the establishment who spotted an opportunity that all the billions of dollars in Silicon Valley was ignoring: Facebook couldn’t go public, and it needed money and liquidity.

..................

The Macro-Economic and Cultural Backdrop. The impact of each of these moments was about so much more than the companies themselves, and that’s what makes them different from, say, Google’s IPO which was a huge moment in tech, but didn’t have much of a macro-economic impact beyond Google, Google investors and Google millionaires. Netscape’s IPO came at a point in time that it represented a catalyzing of the birth of the modern startup, the birth of the Internet and the impact of a truly democratized stock market.

I must admit I am one of those who does think that the Next Big IPO will be the Netscape moment, rather than it having come and gone, simply because the DST moment was not globally galvanic the way Netscape was. I think we are still in a period before this, as explained in the "10 steps to the next Bubble" we set out - to recap:

1. There is a New New Thing that trancends the Old Economics, and you cannot value It the Old Way. This Time It will Be Different. Dumb Money companies start paying over the odds for New Thing acquisitions.

2. Smart people who have been there before start calling it a Bubble (or at least a "Frothy Market"), New New Thing apostles make ever more glowing claims of the dizzy heights available, while "Startup Networking Events" start to proliferate.

3. Companies with founders deemed to have "rubbed off the right stuff" (ie sons of, ex employees of, etc etc) get funded straight off at eye watering valuations for next to no product proof or traction.

4. There is a flurry of new incubators started by (newly minted) VCs (trying to buy in)

5. Companies start getting funded "off the slide deck" with no actual product

6. MBAs start leaving banks to start up companies

7. The "Big IPO" happens (Netscape et al)

8. The big Investment Banks start to make a market in the New New Thing, punting in your pension money, and have "entrepreneurial" options and divisions to retain les autres MBAs

9. Your Taxi Driver gives you advice on what stock to buy - you punt in your own pension money

10. A New New Thing darling buys an Olde Industry thing at Stupid $$$. This is the Top Of The Bubble.

We believe we are still mainly in stage 4, "gusting 6" though there are signs that banks are starting to get into secndary market trading with pension fund money now. I would put us at c 1992/3 for 2 reasons:

- An IPO is "real" price discovery - selling tiny amounts of stock on a restricted secondary market is not, so its hard to imagine a mass of money being motivated yet

- The DST deal to me is a classic Stage 4 by a savvy investor buying in with the assumption of a future liquidity event, not a public play - the world pre-Netscape was full of this.

Also, we are still lionising Closed World services, what is really required to get mass buy-in is open, easily portable services that create value in more than one place in the value chain (and lest we forget, AOL was the big kahuna when Netscape took off, Case was the Old Zuck, and Mosaic was something nerds did). There is no doubt that the secondary markets do have an impact, but at current size I'm not sure they are any different to the insiders trading shares in pre-IPO dotcom stocks, just that the micro-prices are publicly available.