Wall Street's crisis differs for Net stocks

... this time around compared to 2000/2001 meltdowns

I haven't put on my trader's hat in a year, but I can't help rubbernecking to see the carnage now being strewn across Wall Street.

I also felt the urge to write after reading Fred Wilson's piece titled "Being Contrarian," in which he says it may be time to nibble:

"The way I look at it, things are bad out there, particularly for financials and companies with bad balance sheets who are over-leveraged and have near term liquidity needs. You can't buy those stocks in this environment. But there are plenty of companies out there with stock prices 10-15% lower than they were a month ago where the fundamentals of the business haven't changed. And my gut says it's time to start nibbling at them." (From Fred's blog)

After reading Fred's take, I recalled the time my former boss Larry Kramer wrote on MarketWatch right after 9/11. In it, he advised everyone to start buying stocks (including, presumably, Internet stocks with the ticker MKTW.

I, however, took the opposing view, advising my readers to step away from trading. It wasn't because I didn't think it was a good time to buy. It was because I felt that profiting on the stock drop caused by the terrorist attacks seemed a bit like war profiteering.

But more people agreed with Larry, and with President Bush, who urged Americans to use their wallets to strike back at al Qaeda. The problem with that advice was that the markets didn't bottom until October, 2002.

This time around, a lot has changed, for me and for Internet stocks. Today, I'm focused mostly on covering private companies. And, today - there's a whole boatload of new companies - TechCrunch, VentureBeat, Mashable, GigaOm - covering startups, whereas during the last meltdown there were far fewer publications that cared.

So what does the turmoil mean for the startups?

First and foremost, it means the IPO window which has been closed for most of this year will continue to be. That means large, fast-growing companies like Facebook will remain private, if they're not acquired by someone else.

It may put a damper on some angel and venture investing, since many of those investors have at least part of their diversified assets in hedge funds and other vehicles that are exposed to public stocks, mortgage bonds and the like. So far, the turmoil hasn't caused some prolific angel investors to tighten their purse strings. "Business as usual for me," said Ron Conway, the most famous angel investor in Silicon Valley. "The pace of innovation in Silicon Valley is high."  

As for public Internet stocks like Google and Amazon.com, I think there's a strong argument that their businesses, relative to the rest of the market, are much stronger than during the dotcom bust. Back then, it was the Internet companies that fell first and hardest, followed by telecom firms, then the rest of the market.

These days, valuations are based not on hype or "sticky eyeballs," but by healthy market trends that are seeing heavy investment and spending. 

For example:

- Google is taking an ever-greater share of advertising dollars

- Online ad networks are seeing explosive growth, and acquirer interest 

- Ubiquitous broadband is fostering a Web video boom that has yet to be monetized

- The iPhone, Google's coming Android phones and other wireless devices are sparking a boom in apps

- The push toward cloud computing is driving sales of servers, storage devices and virtualization software

If the valuations of public Internet companies like Google and Amazon hold up relatively well to the overall market, that's good news for private firms, whose valuations are usually pegged to them. 

To that end, Fred had a good point raising it. It's the health of these companies that give all the private companies hope, if nothing more than at least an exit because IPOs are definitely out of the question.

I'd love any feedback about why this time around, it's different. And, whether anyone is ready for a nibble. More importantly, if you're an angel investor - are you nibbling or are you holding back your appetite? 

(Image source: Bloomberg. Republished to be featured on front page.)