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Here we go again


Everyone knows that business is all about cycles. What goes down must go up, and vice versa. With my dot-com scars so recently healed, I am loathe to be trumpeting another technology boom. But things are certainly afoot.

Being an investment banker, I tend to think of cycles and periods based on marker deals. For me, the dot-com is about spectacular IPOs of mediocre companies like Dr Koop and iVillage, the implosion of Boo and the raising of $1 billion in one financing round by Webvan. I do remember the successes too, like Amazon, match.com, Expedia and many more.

I think that the acquisition by News of MySpace is going to be another such marker for me (yes, I am yet another person writing about MySpace like nothing else has happened in the world this year!) – this time, as confirmation of the dot-com echo boom. The fortunes of Google and the eBay acquisition of Skype didn’t do it for me; they were one-offs with not much of a ripple effect. News has set in motion a rush by media players to snap up sites that are aggregating fresh, niche or differentiated eyeballs.

Throw in the whopping YouTube aquisition and suddenly everyone realises that the internet has a much bigger share of eyeballs than it does of advertising spend, so there is a natural adjustment to come.

The good news is that there are some significant differences this time. Social networking, blogging and self publishing sites such as MySpace and YouTube first built strong and loyal user communities and proper business models before splashing it up in the financial pages. The much touted IM Generation avidly consumes this kind of media. In the first boom there were a lot of examples of people building things because the technology enabled them to, not because they had found a way to meet an unmet consumer demand or leverage an emerging social phenomenon. This time we seem to be more in tune with the business model.

Another big change is that IPOs are off the boil in the US, the NASDAQ is still a remnant of its former self and over-funded VCs are struggling to find enough billion dollar deals to go around. So this is less of a stock market-driven bubble and all about trade buyers stepping into the market and pushing prices up. After conserving resources during the lean times, many big technology, media and telecommunications players feel that now is the time to play catch up through acquisition. So there is an emerging buying frenzy and some good assets are getting excellent multiples. But, in the end, trade buyers have to be able to justify to boards, analysts and shareholders how the multiples they pay stack up and add to the bottom line so there is less danger of it careening out of control like last time.

A very astute buyer like Rupert Murdoch, who I believe is the greatest and smartest acquirer of our time, may pay 30 or even 50 times revenue for a prize asset with strong growth and a natural overlap to his existing base. But he isn’t ever going to pay 500 times like retail investors did on NASDAQ with the help of some dubious Wall Street promoters.

Best of all it turns out that is actually the key driver of the new media world. For a while there it looked like everyone wanted their for free and ad buyers weren’t going to support the entire new media inventory. Now it turns out there is a shortage of good .

In the same way that Rupert Murdoch’s business was founded on compelling (his grandfather risking court-martial to break the truth on Gallipoli) and Walt Disney captured the emerging television market through producing people wanted to see, now the same thing is happening again in our world. Could it be that we are going to get a plethora of quality internet experiences that users want, which get acquired, funded and expanded by stable and smart businesses without tipping whole economies on their ear?

There is cause for hope.

Michael Gale is co-founder and CEO of Gramercy Venture Advisors, a boutique advisory firm, predominantly servicing young companies in high growth sectors and professional investors in this space. Prior to Gramercy, Michael spent the previous eight years as CEO of San Francisco and New York-based Double Impact, a leading venture catalyst.