Color and the Mania in this Valley

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I love the free enterprise system, but I hate bubbles. They distort everything, and they bring out the worst in people. That's why, living in the Silicon Valley, the late 1990s was an unpleasant time for me. Sort of like right now.

Back in 1999, my little company, Prophet, had an office at 420 Cambridge Avenue in Palo Alto (there's just an empty lot there now). Prophet was in its seventh year of business, and I had started the company with a war chest of $3,000. It employed a dozen people, made good products, and turned a profit. It was grown organically, and I was proud of my enterprise.

Next door to us was a startup called DoDots. They appeared out of the blue and had $20,000,000 dropped into their laps for a product which – as far as I could tell – was absolutely useless. It needled me that someone could dream up an idea – - and, in my mind, a really lame idea – - and, without a single dollar of revenue, let alone profit, get a check for twenty million dollars to pursue their "dream." I admit I was a little jealous at not having that kind of cash at my disposal, particularly since I had worked hard on a legitimate enterprise for years.

Well, fast forward a year later. DoDots was LongGone. So was the money. I don't know what VC genius lost $20 million, but that was a spit in the ocean of the trillions lost in the dot-bomb bubble. And Prophet? Still chugging along, with real customers, real sales, real profits. And a real sense of relief that the insanity had ended.

Well, my friends, the insanity is back, and it's bigger than ever. But……..but………it's different this time. It always is, isn't it? Why is it different? Oh, that's easy. Just listen to any of the entrepreneurs or VCs scurrying around my town:

(a) The dot-com days were about concepts. The companies funded these days are real products with real customers.

(b) The sheer enormity of the Internet population makes it much easier to get huge. A decade ago, the web was a shadow of its current self.

(c) Look at Facebook. Look at Zynga. Look at Twitter and Groupon. You wouldn't want to miss the next big thing, would you?

There's only one Facebook, ya know. That space is taken. Same for Twitter and Groupon. Sure, there are hundreds of Groupon clones, but Groupon's won.

But let me direct your attention to a new company within walking distance of my house that got me thinking about the New New Bubble. It's a firm you may have heard of called Color.

It runs on your iPhone or Android, and here's what it looks like:

0402-color

Yeah, it's a bunch of pictures. The product is real. It's live. You can download it right now. How are the reviews of this new product shaping up?

0402-coloreviews
In case you're not acquainted with the Apple Store review system, a 1-star is the lowest rating a product can get.

Now the BFD with respect to Color is that it lets you instantly share and receive photos from everyone – utter strangers – that happen to be nearby. I can't say I've ever been inclined to know what total strangers are doing, but if you walk to downtown Palo Alto, you'll see this charmingly handwritten note taped to the entrace of their offices.

0402-colornote

So here's the kicker: these guys were handed $41 million in cash in funding. That must have been one hell of a PowerPoint presentation, huh? Oh, wait. Hold on. They didn't even bother with a PowerPoint deck. Sequoia just had them come over, describe it, and get funded. Bang. Done.

So does this market the top of the market? Good Lord, you think I'm going to be top-calling after all we've been through? No way. Frothy startup valuations could go on for years and could make the above investment look downright prudent. But what I am saying is that there's no doubt in my mind that – for the 3,289,829th time in humanity's history, we're in a bubble, and this one is going to end the same way all the other ones did.

A lot of people will get hurt. A lot of people will be disappointed. And things will get back to normal.

And people will scratch their chins, nod their heads, and solemnly vow that they've learned from this experience and will never do anything like that again.

Which is exactly when the new bubble will commence. Because people never learn. Ever. Just take a look at where we were two years ago and where we are now. People have learned zilch, and nothing has changed. If you asked a person two years ago what they thought April 2011 would look like, they'd probably assume corporations would be heavily taxed, Wall Street would be under Congress's thumb, and Lloyd Blankfein would be begging for mercy in his prison cell.

But no one learned a thing, and if anything changed, it simply changed for the betterment of Wall Street. Here on my own coast, the entire dot-bomb and Great Recession crashes have had no effect on the mentality of the people here. Everyone expects to get rich, and they expect it as a birthright.

We shall see.

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