Everybody knew dot-coms were overvalued, but nobody saw by how much. Net11, another Cleveland incubator, sounded a similar retreat earlier this year, but Northeast Ohio's rusty air is not to blame. Initially, e-companies like these dazzled investors, but their stocks plummeted because they couldn't generate cash. Edwin Bruder, managing director of the Gordian Organization, a Beachwood consulting company, says incubators are nifty in theory, but don't work as well in practice. A major problem, he believes, is the clumsy balance between venture capitalist and management whiz.
Incubators find that making money and building companies can be mutually exclusive activities.
Bruder is more comfortable with companies that charge fees as well as accept equity stakes. Wheeler now sees incubators' inherent faults. And without a portfolio, an incubator can't spread its risks. Yet Wheeler still adheres to the wildcatter spirit of the so-called New Economy, asserting that, in Silicon Valley, going bust is a sign of credibility. If it's true, credibility flourishes.