So a lot of those businesses have very low gross margins, and in fact some E-tailers have negative gross margins. And they have to spend a tremendous amount of money to get people to come to the site and to continue to have them buy on the site.
Inc.: What made them so attractive for so long?
Quindlen: I think that Wall Street fell in love with them because they were an early Internet play. That's why they bid Amazon and others up so high. And then the venture community did something that I think they didn't do in the past, which is they followed Wall Street.
Inc.: Which of the Net models look like long-term survivors?
Quindlen: I liked business-to-business two or three years ago because I thought that there were fundamental changes that the Internet could bring.
Going forward, I think wireless is interesting. I think there's going to be a fad around it, unfortunately, which will drive up prices crazily, and there will be a lot of momentum plays. But I do think that your phone is going to be your fundamental information device. And you're going to want to do more and more on it. And it's important for us to put in place the infrastructure that allows you to do that.
Inc.: Who decides when a company can't cut it and it's time to stop the flow of venture money?
Quindlen: That is not happening much anymore. The reason is, there's so much money around that companies get two and three and four times to get it right. It used to be in the venture community that you probably had write-offs for at least 10% of the companies you backed. You would have 35 companies in a fund, and 3 to 4 of them might be complete write-offs.
Now you have a lot of time to find somebody to invest in them or to sell them to somebody that has an inflated stock and can find some use for them. I would say that the number has gone down to maybe one a fund, as opposed to 5 or 6 a fund. The environment has changed dramatically.
When it does happen, the company and the venture capitalist decide together, because the first premise is that they're anxious to keep going, right? Generally, what happens, if it hasn't worked and you've stuck it out for more than a couple of years, you're pretty tired. You're tired of breaking your pick on a rock. It's very much a team decision. It's not as if we pull the plug because it's our money in there. We're all in the same boat.
Inc.: What's been your biggest mistake so far?
Quindlen: I had the chance to invest in a company called Onsale that was one of the earliest auction sites on the Net. It was a new model. The Internet was new. And I didn't go for it. And that was a huge mistake for a lot of reasons. Number one, I could have had an early success on the Internet. It would have brought me other deals that I never saw because I didn't have that very early success. And Onsale merged with Egghead.com, and they're a large public company now. I fudged the decision.
Inc.: Why?
Quindlen: I wasn't willing to take the risk. I was a coward. I didn't want to be wrong.
Inc.: When the music stops, won't boldness seem vastly overrated?
Quindlen: Yes, but until then, if you're not bold, you're standing on the sidelines watching everybody else who is succeeding. I also think that even when the music stops, the market rewards boldness. It likes new ideas. It likes new concepts. It likes people striking out in new directions, if they can show that they can make their ideas succeed over time.
Inc.: Did the stock-market drubbing in April rattle Silicon Valley?
Quindlen: Like the coldest of cold showers. I think that everyone was dreading a significant correction. And that week of dropping stock prices sure felt like one. Some of my partners looked almost gray.
Inc.: So you weren't blindsided?
Quindlen: I wasn't completely blindsided. In fact, I had personally sold a significant amount of my personal holdings in January and February because I was worried about a correction. I know that the Street usually overcorrects. It's like the hangover that you get as payment for too much partying. Still, the severity of some of the individual stock movements was certainly a surprise to me.
Inc.: What steps have you and your partners taken to adjust?
Quindlen: We are encouraging our companies to cut their burn rate and show a faster path to profitability.
Inc.: Are you any less optimistic about the prospects for cashing out your investments at full value?
Quindlen: It's hard to tell what will happen to technology valuations. I don't believe that valuations will return to their recent highs. In that case, are we going to move back to the pre-Internet valuations, with earnings as an absolute requirement and valuations based on a multiple of those earnings? We don't really know.
Inc.: What are the ramifications of the wobbly stock market for entrepreneurs?
Quindlen: They should start fewer "me too" businesses, pay more attention to building great -- rather than hyped -- companies, and stay focused on profitability targets.
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