The individual investor funded the Internet boom and funded the incredible risks associated with the internet boom and transferred tremendous wealth into the coffers of the wealthy. During the time period between 1996 through 1998, net flows to domestic mutual funds exceeded $500 billion bringing total mutual fund assets to $5.2 trillion. The internet stocks became represented a new type of investor, the individual investor, who was more interested in the companies market capitalization, future growth estimates, revenue velocity, and web traffic and less dependant on profit fundamentals. Venture capitalists need the individual investor to fund the tremendous risk associated with the new economy. By 1999, total household financial assets reached 50%. In 1998 technology industries generated $955 billion in revenues and represented 53% of business expenditures and contributed to 8% of the GDP and 37% of the new jobs. Microsoft, Intel, Dell, Cisco, and Oracle made up almost 65% of the total shareholder value. “We like to speculate on things that are new and different- it is in our genes. When great technologies come along, whether they are canals, railroads, auto, computers, or internet, everybody wants a piece of action. Speculation tends to go hand and hand with entrepreneurship” says Roger McNamee.

The investment banker and VC push stock prices into the stratosphere and the individual investor’s greed put him a precarious and jeopardizing his financial position for a massive shakeout during the new land grab. Investment banker setup IPOs. Investment bankers make their money by keeping the big clients happy. These investors control huge blocks of cash and use their financial power to bang on the bankers for big stakes in IPOs. Individuals jump for the IPO. “What whet the public appetite for these investments is the innate human tendency of wanting to get something without creating something.” During manias investors forge how much time it takes for a viable company to become established. The investment maniacs in the public market end up sacrificing the net worth for the sake of the industry. The rich sell of the initial investment in the IPO and pick clean the pockets of the average investor. “Theres a thinning of the herd, and the greedy lose their capital on behalf of the insiders.” By 1987, technology was considered an un invest able class by profession money managers for this exact reason – its unpredictability. Who profited from these IPOs? Earthweb sold 2.1 million shares a 27% stake on the first day, starting at $14/share and ended the day at $49.69, a 247% increase. TheGlobe offered 3.1 million shares at $19/share and at close ended $63.60, a 606% increase. In 1998, eBay went public at $18/share and in 7 weeks later the stock prices was at $174 a share and reached a market capitalization of $7 billion. The rich investors cleaned house. Ebay was turning 5 million shares a day. In 1998, IPO offerings jumped 70% in their first day. Marketwatch went public at $17/share and at the close finished at $80/share up 474%. Priceline offered 10 million shares at $16/share and ended at $81/share, a 331% increase. K-tel started at $4/share and jumped to $40/share and dropped back too $4/share from Apr 1998 through Oct 1998 then K-tel announced it would sell music on playboy and its stock jumped 93% the next few days with 20 million shares changing hands. 4 million shares belonged to Philip Kives and 8.3 million shares were available for trading and the price spiked despite the fact the company had 3 years of loses.

Venture capitalist rate of return for over 30 year period of time has been 23% and recent five year returns range from 50 to 150% returns. In 1996, Intel invested $2.5 billion in 200 companies. In 1998, 139 Venture funds were created and $17.3 billion in new capital was generated. VCs satiated the public investors appetite and demand for particularly overvalued internet stocks. “Public investors did better in IPOs of profitable companies that did not rush to go public, than in those of losing companies that did…They got the message, beware of venture backed IPOs” On such high quality IPO was cisco which had $13 million in revenue before going public and its share price moved from $18 to $22.

Individual investors are called angels. Angels are not a predictable source of funding. Angels put their money in high tech stocks startups. In 1995, investment club started with 12 members and end up with 120 angels and placed $500,000 per startup. In 1998, a 40 member angel group invested $4 million in a company called sendmail.

In 1973, KP took $1 billion and invested it into 300 startup companies and the companies net worth grew to $300 billion market capitalization. These companies included names such as Compaq, Sun Microsystems, AOL, Netscape, Amazon, and At home. KP leveraged its record into raising a series of 12 increasing large funds, the largest held $350 million mainly for university endowments from Harvard, Stanford, and MIT. KP partners reaped 30% of the capital gains and 3% annual management fee.

KP needed to conquer and gain control of the internet. Microsoft never became an ally instead became the most fierce competitor in a race for control. AOL & Netscape, AtHome and Excite in force in the internet portal and designed barriers to keep MS MSN online service a distant competitor. KP had $5.9 billion in revenues and $26 million in loses in a 12 month period ending Mar 31, 1999. What remained were 14 companies with $1.7 billion in revenues and $704 million in losses. KP was destined for a massive shakeup once the individual investors realized they could not defy financial gravity. Perkins said, “We consider it our responsibility that the company never run out of money, we help them hire the right people, and we help them identify risks and put the risks behind them.” This statement suggested big money to put the risks behind. The most dangerous risk is market risk, Removing market risk is expensive. “We will take technology risk over market risk any day”. KP goal was not quality companies but a quantity of companies. “The United States does tow things better than the rest of the world – grow food and make technology products”, 1-2,-3 rankings US, Canada, and Israel. Don Valentine tactics: 1. find monster markets 2. find good technology and technologist 3. Find outstanding leaders and management teams 4. invest in and build companies.