0.16 Money for nothing

While Furness was struggling for money inside the HIT lab, the gold rush was raging outside of it. In February 1997, Coopers&Lybrand reported that 61 Washington companies had closed venture-capital deals in 1996, bringing $295.5 million into the state—a significant chunk of the $10.1 billion invested nationwide in such deals, particularly given the size and remoteness of Washington. “It probably doesn’t get any better than it is right now,” the Puget Sound Venture Club’s Gary Rittner told the Seattle Times . “These angel Ever get the impression that venture capitalists gave this name to themselves? Who else would call these ***s “angels”? investors are feeling pretty good. If you’re the right guy with a good idea, you can probably get the money.”

Weirdly enough, it was going to get a lot better than it was right then, and you didn’t even have to have a good idea. In retrospect, the years 1996-1999 can be seen as a classic mania of the sort that overtakes financial markets in times when money, being in oversupply, sends people into a paradoxical panic to make a lot more of it. At the time, most Seattleites viewed the boom as evidence that economic rules and models were changing and that Seattle was helping lead the world into a new economy, the workings of which were inexplicable to minds trained to think in old-economy terms. In time, the believers insisted, the new rules would become clear, the behaviors and results rational and reasonably predictable.

Cooler heads tried to prevail. Even as early as 1997, people in Seattle and elsewhere were floating comparisons between the dotcom boom, as it was beginning to be called, and the 17th-century Tulipmania speculation disaster. Excited as Seattle was by the surge in wealth, growth and energy, there also was the profound sense among many here that something was tremendously wrong about the city’s headlong rush into unreasonable prosperity—particularly given the obvious fact that many of the local companies reaping millions in the stock market or from private investors would never, under any circumstances, turn a profit.

Examples abounded of nonsensical investments. Virtual i/O raised first-round cash of $20 million, most of it from the cable television company TCI, to build head-mounted displays, on the theory that millions of consumers would eventually want to wear their televisions. FreeShop.com, a web site that compiled free offers for consumers, had a market capitalization of $203 million at the close of the day it went public. Amazon.com, emerging as Seattle’s biggest startup story, having lost $5.8 million in 1996 and on its way to losing $1.75 billion through mid-2000, filed for an initial public offering in 1997, generating infinitely more excitement than old-fashioned, profit-making, outmoded Microsoft had when it went public in 1986.

By the end of 1997, there was very little talk in Seattle of where technology was headed or what technological bets would play out well in the long term. Talk had devolved exclusively to what idea would catch on fabulously enough to take a company public, cash in, and make its promoters millionaires. After that, who cared what happened? Money, which a few years before had been the means by which a technical vision could be fulfilled, now was the end in itself, the funded hallucination being a mere means to instant riches. Instead of betting on a company’s prospects for turning into a solid business, investors were betting on companies they thought would generate enough hype to lure in huge numbers of subsequent investors immediately. It was like watching people bet on racehorses that would be taken out and shot as soon as they crossed the finish line—even if and especially when they won.