On January 7, 2002, The Washington Post reported that the number of Internet companies that sought Chapter 11 bankruptcy protection, or went out of business, in 2001 was 537, up from 225 in 2000. There are many reasons the dot-com collapse occurred and I will not generalize this blog with too many of them. I do want to highlight one pitfall that befell the dot-com industry that could very likely be repeated in the computer games industry; access to appropriate sums of money to fuel the industry at critical junctures of organizational growth and maturation.
In late February 2001, the online retailer eToys announced that it would file for bankruptcy and close down its website in early March. Company management said that a shortage of cash for operations, and little likelihood of raising more, was the primary reason eToys collapsed. Two things are sad to me about this – I owned 24,000 shares of the stock in my retirement plan in the midst of this bankruptcy (I was not an employee or insider), and I thought eToys was one of the smartest, most exciting, and viable new internet-based retailers in the entire dot-com arena!
Critical analysis of eToys demise includes several aspects of their operations which drained cash from their coffers. As their financial picture eroded, it became much more difficult for them to raise critical funding from banks or the venture capital community. I still believe that eToys was an idea that merited more funding and could be alongside such internet giants as Amazon and Yahoo today.
In the height of the dot-com mania, anyone with money to burn was willing to throw it at any dot-com idea that wanted it. Venture capitalists, large and small, were not alone in their zeal to cash in on this fantastic opportunity as many individual investors (like me) pressed their own investment dollars into the stock of these companies. As a financial services professional, I saw that nearly everyone abandoned smart investment strategy to ride the dot-com bull, so much so that they often refused to sell when their own investment return exceeded 300-500% in a year or less.
I see a very similar, emerging situation in our own computer games industry. Money is beginning to flow freely in certain areas, and I don’t think our industry is sophisticated enough, just yet, to handle the onslaught of investment cash available. As long as we do not understand the monetization and revenue strategies that will lead to financial health of our products and services, we are not fully equipped to present such strategies to the funding community, nor are we ready to determine how much of our business ownership should be “given up” in any financing scenario. Very few successful games companies are grown up enough to be viable financially and fewer are ready to negotiate either secondary capital infusions from venture capitalists or the important details of an initial public offering.
I have a buddy who has worked for many years in a senior development post at a major technology company everyone knows. At the height of the NASDAQ market in 1999, before Alan Greenspan’s “irrational exuberance” testimony before Congress, my friend’s personal holdings in company stock was worth $5 million dollars. Today, it hovers around $300,000. In part, the dot-com bust, along with an economic downturn that began in late August 1999, plus such debacles as Enron, drove valuations into the basement and many Americans were severely harmed in the process. I know dot-comers who are waiting tables today, running small temp employment agencies, etc. Life has changed for all of us because of those difficult times that followed on the heels of dot-com mania and other related investment valuation issues.
Here at I’m Serious.net, we are committed to accelerating the conversation around money in every aspect of our serious games industry, because what we all do makes the world a better place and changes the lives of individuals and families all over the globe!
Let me hear from you about serious money ideas and issues!
I’m Serious!
Michael
