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— Analysis —
It was a rough year even before Sept. 11. The Nasdaq slid as dot-coms died in waves. The slump at first seemed containable to hordes of oddly named digital wonders without business plans. But many underestimated how deeply embedded the dot-coms had become -- and how key they were to the venture-fueled dynamics of Silicon Valley. As dot-coms succumbed, they undercut larger suppliers of chips, hardware and software, always hitting overleveraged, more exposed entities first. By summer 2001, telecoms were suffering, particularly those that had been spending heavily on M&A and network rollouts. Fiber-optic network companies like 360networks (bankrupt, liquidated) or Global Crossing (bankrupt, sold) cratered in various interesting ways; the CLECs followed. Venture capital portfolio companies folded. The IPO market slowed; in mid-November, The Daily Deal felt it noteworthy to report that three healthcare startups went public on the same day. Meanwhile, private equity hung on. As shares fell, bargains proliferated. True, financing got tougher as months passed and banks shied from risk. Buyout executives began to wonder whether bank consolidation had gone too far and undercut competition -- an ironic comment, considering the bank-fueled boom and bust to come. Still, for most of the year, this was a standard-order recession. The Nasdaq fell steadily, losing half its value in the year after the March 2000 peak. Unemployment crept up. This was the bursting of a psychological as much as a financial bubble: the digital future on hold. Orthodoxies, at least about the Web, dissolved. And yet, all was not gloom. On the morning of Sept. 11, The Daily Deal led with the resolution of a fight between LVMH and Pinault-Printemps-Redoute over Gucci. Castle Harlan doubled its money by selling a portfolio company, Worldwide Flight, and Comcast stalked AT&T Broadband, despite Time Warner Inc. swooping in. And, yes, VC investments in education were down. That morning, of course, saw the attack on the World Trade Center and the Pentagon. By midday, the office had closed, although reporters soon began filing to the Web (a foreshadowing of another future), particularly the next day, when Manhattan was sealed off. We returned Thursday, putting out Friday's paper with its photo of smoke over Wall Street and the headlines: "Wall Street begins to count its losses" and "For NY, a harsh VC market made tougher." A tough year turned surreal. The New York Stock Exchange reopened, but stocks crashed. Deal markets essentially froze. Airlines weren't flying, and when they were, professionals were not anxious to hit the road. Many stopped by to talk, slightly stunned. As weeks passed, activity ticked up, demonstrating the resiliency of the deal economy. On Oct. 30, we wrote of European VCs caught between pressing on or giving LP funds back. In Washington, antitrust regulators complained of a fee shortage because of a dearth of deals. On the bright side: Fiat made $6.3 billion selling Montedison assets and Bain banked $55 million by unloading Odwalla on Coca-Cola. By then, Enron was sinking, its stock at $15, down from $42 on Aug.
15. Cracks spidered a once-fabulous facade. Sept. 11 was a distraction
but put more pressure on the stock. After a billion-dollar
third-quarter loss, analyst, media and regulator suspicions spiked, and
Enron desperately sought a white knight in crosstown rival Dynegy.
To no avail: With shares at 50 cents, Enron filed for bankruptcy Dec.
2, bringing an unraveling year to an end and setting up a 2002 that
would be all about corporate revelations, Wall Street recriminations --
and renewal. And oh, yeah, war. Read and watch more in our
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The year 2001 was shaped by three events, none of them remotely uplifting: the full fury of the dot-com bust; the massive shock of Sept. 11; and, as a generally lousy year ended, the self-immolation of Enron Corp. The first suggested that we were dumb, the second that we were vulnerable, the third that we were deeply flawed. Maybe we should have become more cognizant of those tendencies. But throughout the '90s, with a few exceptions, the world seemed headed toward increasing security and prosperity. The Cold War was over, America and its technology, from the Internet to broadband, embodied manifest destiny. Dealmaking metrics mounted. In hindsight, 2001 was a counter-reality, evidence of profound fragility. 
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