Web 2.0 Expo: it’s getting frothy out there

April 16, 2007, 2:48 PM UTC

It’s getting more expensive to fund a startup, and more eager investors are streaming into online companies, said panelists at a venture capital panel at the Web 2.0 Expo in San Francisco. One panelist described it as an early sign of a bubble-type environment.

Because startups are selling to larger companies and going public,

investors don’t want to be left on the sidelines. “You see people

getting bubbly when the exits happen,” said Michael Eisenberg of

Benchmark Capital.

The panelists for the afternoon session were Jeff Clavier, managing partner at SoftTech; Eisenberg at Benchmark Capital; David Hornik, managing partner at August Capital; Josh Kopelman, managing partner at First Round Capital; and Chris Moore, partner at Redpoint Ventures. The panel was moderated by Michael Arrington, editor of TechCrunch.

Generally speaking, the VCs were in good spirits; their Web investments are paying off these days. But they did note a couple of indicators that are a bit sobering. Engineering talent is in higher demand and is getting more expensive; it’s tougher to get a company started with $250,000 or less. Also, because Google (GOOG), Yahoo (YHOO) and other big public Web companies are buying startups, more investors are hoping for a piece of the action and are pumping more money into the ecosystem.

One can deduce the cumulative effect of those two trends. One, it’s more expensive for startups to fail; it might cost them $500,000 to figure out that an idea doesn’t work, rather than $250,000. Two, because more investors are rushing in, more questionable ideas are likely to get a decent amount of money before they fail. (The panelists did say the public markets have shown nothing approaching its late-’90s appetite for speculative companies without revenue and profit, so there’s no sign yet of that kind of bubble.)

The panel packed a room at Moscone West with folks in the typical Web 2.0 wardrobe – lots of guys in open-collared shirts and semi-dressy pants.