Why Are Internet Deals Hot?

The bloom might finally be off the blog rose. While many VCs are continuing to update their blogs, they seem to do so less regularly than when blogging took hold late last year. Some, we have noticed, prefer to just link to other news sites. But one, who is in the midst of fund-raising, found the time to espouse on a hot trend in venture circles.

Rehabilitating Internet VCs

Bill Burnham, Managing Director

Celsius Capital


Just a short time ago any VC that mentioned “consumer Internet” would have been summarily executed and had their body left in a box by the side of Sand Hill Road, a la Ned from the movie Unforgiven. Most consumer Internet VCs either laid low somewhere in the Santa Cruz Mountains or entered the Internet VC protection program, otherwise known as software investing.

What a difference a couple of years make.

The resurgence of consumer Internet investing offers a cautionary tell about the fickle nature of VC investing. An investment space that was supposedly dead is now white hot.

Yet anyone following the core trends of consumer Internet usage would have known that the consumer Internet was anything but dead. Since 2000, the percent of U.S. consumers that use the Internet is up from less than half to over two-thirds. This increased usage, combined with heavy broadband adoption and increasing e-commerce activity has created an extremely vibrant and dynamic consumer internet market.

Now that Google has shown the light and there is no longer a stigma attached to consumer Internet VC investing, there’s little chance that VCs making new investments will end up like Ned.

But there’s also little chance that they will make outsized returns because everyone else is plowing money into the space driving up valuations and funding marginal deals.