Venture capitalist Reid Dennis: 'We've just scratched the surface of the Internet'

By BARBARA WOOD

It could be argued that Sand Hill Road, lined as it is with the offices of the venture capitalists who have been the leading funders of the high-tech era, is the center of Silicon Valley -- if not its heart, then definitely its pocketbook.

Reid Dennis, founder of Institutional Venture Partners, or IVP, has a unique perspective from which to view Sand Hill Road. He's been in the business for 47 years, long before anyone had ever heard of "dot.com companies," even before venture capitalists were called by that name.

Mr. Dennis, who lives in Woodside with his wife Peggy, has invested in companies such as Ampex, Collagen, Seagate and Excite. He's also a history buff who has decorated the IVP offices and those of its spin-off, Red Point Ventures, with an extensive collection of original lithographs showing the Bay Area in the 1850s, scale models of steam engines and old books.

Mr. Dennis says he sees an almost unlimited potential for growth of the Internet. "I think with the Internet and interconnectivity of the world, we've only just scratched the surface," he says. Perhaps 80 percent of the growth of the Internet is yet to come, he predicts.

And Silicon Valley is definitely the place to be, he says.

"In terms of starting a company today in the high-tech area, Silicon Valley is the one place to go," he says.

One of the exciting things about Silicon Valley today is that anyone with a good idea can get funding, Mr. Dennis says.

"It doesn't make any difference who your daddy was and it doesn't make any difference where you went to school," he says.

For those who feel a little cocky about living in a place where new millionaires are being created every week, Mr. Dennis offers a little historical perspective.

"During the early days of the development of the automobile, Cleveland was cutting edge," he says.

But Mr. Dennis warns that the economy spawned by the growth of the Internet cannot be sustained forever.

"In some respects, it is similar to musical chairs," says Mr. Dennis of today's incredibly hot market for Internet start-up companies. "There's going to be some that fail and some that are too late. There's bound to be some unnecessary dot.com companies brought into existence."

He calls the recent phenomenon of the stock of new Internet companies going up by six or seven times the offering price on the first day of public trading "absolutely insane."

"There's just no substance in them," he says. "There's just no rational connection between price and value."

History shows, he says, that this won't be sustained. "Any time in the history of the world that there has been a great rush into a small segment of the market, and it has gotten out of whack, it has eventually readjusted," he says.

When that's going to happen, he won't predict.

"I don't see any near-term blow-up of the Internet frenzy," Mr. Dennis says. "Maybe it is 18 or 24 months from now -- maybe it's 36 months from now -- but some time it has got to turn around and return to a rational basis of valuation."

As for Mr. Dennis, he plans to spend some time looking at something many see as a historical parallel to the current economy.

"My next project is to learn as much as possible about the tulip bulb craze," he says. "I hope we're not just growing new and rare tulip bulbs."