Money for nothin Featured

9:42am EDT July 22, 2002

All Adam wanted to do was earn a little money for his upcoming trip to Kennywood Park. But earn may be a strong word for what he really wanted.

“Dad, can I have five bucks?” he asked me recently.

“For nothing?” I retorted.

“Well, yeah,” he said.

That’s when I pointed out my jungle lawn and the fact that, at 11, he was old enough to begin tending it.

“How much would you give me for cutting it?” he asked, scratching his dyed-blond spiked hair. “You know, just the front yard and part of the back?”

“Six bucks,” I said.

“How about 10 bucks?”

I agreed to give The Great Negotiator $8. But he had to do the job.

Within 15 minutes, he came back to me with a “a question.”

“Dad, how about 10 bucks?” he said. “It’s hot, the grass is long, and it’s just too much work.”

“Eight bucks,” I said.

Within an hour, he had stopped at least three times to renegotiate and at least once more to quit before he talked his mother into paying $12.

Once he got the amount he had aimed for all along, I observed a rather strange occurrence. I went outside and noticed that his neighbor friend was pushing my mower around the yard while Adam sat in the grass nearby.

“What’s going on?” I asked my Tom Sawyerly son.

“He says he likes to cut grass, so I let him,” Adam said. “And I’m paying him two bucks.”

Indeed, money for nothing. It seems Adam would fit in well with this crazy New Economy, where nothing is what it seems and you can get money for, well, virtually nothing.

Seven years ago, high-tech start-up Fore Systems finally pieced together a venture capital deal worth $5 million after struggling for a number of years to develop technology while living off of government contracts. The founders worked hard, and pitched hard for the money before New York-based Patricoff & Co. saved the day. By that era’s standards, $5 million was a lot of money, and you had to present a pretty impressive case to land it.

Fortunately, it was enough to push Fore Systems into full manufacturing and sales mode, which then made a lot of people wealthy.

But today, if you want to start a company and you need capital, everyone offers the same advice: Start an Internet company. At least until the stock market recently took a dive, venture firms couldn’t get enough of them and seemed willing to contribute lots of capital for what seemed to be virtually nothing. Even now, earnings play second fiddle to long-term potential, although Wall Street is finally beginning to take notice.

This month’s cover subjects, the founders of Laurel Networks, put together an impressive high-tech team. But these people barely had their entrepreneurial idea in hand before they had four venture firms clamoring for ownership. So far, they’ve raised $12 million for the venture, and they plan to go back for more before finally commercializing a product in a year or so.

It’s almost like money for nothing.

Without a doubt, those high-tech entrepreneurs are working hard to live up to the $12 million worth of expectations, and I congratulate them for such a venture capital coup. I’m certain they will earn every bit of that capital as they press onward in their quest. But I think the venture capital community in general is setting an unhealthy precedent among aspiring entrepreneurs by offering so much for seemingly so little.

Such easy money is bound to spawn a generation of wealth seekers who hope to mine for gold with little more than stakes with which to post their claims. And then they can market their claims without ever having to dig. Sound familiar?

Hard work alone is still what it ultimately takes to build an American Dream that will help sustain this New Economy. I just hope this New Economy realizes it before it’s Adam’s turn to lead it.

And that means it had better hurry. He’s already posted a sign in the post office offering his lawn care services. And who would be doing the work, I asked him? His friends, of course.

Daniel Bates (dbates@sbnnet.com) is editor of SBN magazine.