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December 27, 2006

WSJ hosts Web 2.0 bubble debate

Posted by Benjamin J. Romano at 11:31 AM

Is it a another bubble? The debate rages on over whether the surge of Internet startup companies and the venture capital funding them -- the Web 2.0 phenom -- constitutes a bubble like the one in the late 1990s.

The Wall Street Journal today published a dialogue between two venture capitalists who made bets during the last go-round and are investing again today.

Todd Dagres of Spark Capital says there is a Web 2.0 bubble. One reason, he notes, is that many startup companies are copying existing business models and there's a low barrier to entry. "R&D in a Web 2.0 company = rummage & duplicate," he says. Ouch.

In the opposite corner is David Hornik of August Capital and author of VentureBlog. He notes that much less capital is flowing into Web 2.0 companies than the Internet startups of the late 1990s received. And venture capitalists get quick feedback on the success or failure of these upstarts. "VCs may lose their capital invested early in Web startups, but the amount of capital sunk into failed businesses will never snowball the way it did in the late 90s," he says.

Here's a link to the whole back-and-forth.

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