Venture Capital's Touch of the Bubbly

"Listen, don't mention the war! I mentioned it once, but I think I got away with it. So! It's all forgotten now and let's hear no more about it."

-- Basil Fawlty, Fawlty Towers

Now that were safely ensconced in the 21st century, it finally feels safer to talk about the war. But whatever you do, don't mention the bubble.

I don't mean the bubble of the late '90s. I mean the one that lies ahead.

Nobody but the most cold-hearted of polar bears is willing to say it, but the making of the next great financial bubble is already under way. That's not to say it's 1999 all over again; it's more like the clock has been set back to 1997, when Netscape's stock was trading above $50, Google was a fanciful gleam in Sergei's eye, and the foundations were being laid for a market that would launch -- and then destroy -- many a fortune.

Yes, we've all learned our lesson. But history shows that the inevitable result of swearing up and down that we've learned from hard times is that we end up repeating history all over again anyway. For most of us, it's just too painful to sit on our cash as the market spins out of control.

So, no, we aren't in another bubble -- yet. But like it or not, the signs of one are creeping back, with examples of speculative and irrational behavior that aren't threatening in and of themselves. But each is a milepost on the road back to excess and its constant sidekick -- regret. And some of those signs are showing up in the world of venture capital.

The VC industry had its share of retrenchment in the past few years -- lavish funds that returned money to limited partners because of a dearth of promising investments and the departure of nearly one-third of VCs employed in 2000. But just when VC firms are settled back into a cautious mindset, the buzz around hot tech start-ups is increasing -- and with it the interest of limited partners to invest in private equity again.