The Dot-Com Crash From Inside

I was running a startup in Redmond when, according to Wikipedia's analysis, more than $5 trillion in market value evaporated. The crash didn't feel like a crash. It felt like everyone slowly realizing the emperor had no clothes.

March 10, 2000. The NASDAQ peaked at 5,048.62. I had Core Logic Software, a small Redmond-based company with employees depending on me. We weren't a dot-com startup burning through VC cash. We had actual clients, actual contracts, actual work. But we watched the carnage happen all around us, and the shockwaves hit everyone.

The narrative now is that the dot-com bubble was obviously insane and everyone should have seen it coming. That's revisionist history. I was there, running a company, and when you're inside it, the mania looks like opportunity. The skeptics look like dinosaurs who don't understand the new economy. Here's what actually happened.

The Numbers Were Real Until They Weren't

Between March 2000 and October 2002, the NASDAQ fell 78%. That's not a correction—that's annihilation. As JPMorgan's 25-year retrospective notes, if you had $1 million in NASDAQ stocks at the peak, you had $220,000 at the bottom. Recovery to all-time highs took fifteen years—until April 2015.

At least 4,854 internet companies were acquired or shut down in the three years following the peak. Four out of five dot-coms in the San Francisco Bay Area went out of business. Thirty thousand direct internet jobs disappeared in the Bay Area alone. Nationally, 220 companies shut down in 2000, and another 330 by mid-2001.

The poster children became punchlines:

• Pets.com raised $82.5 million in a February 2000 IPO, declared bankruptcy nine months later with stock at $0.22
• WebVan raised $375 million in November 1999, peaked at $8 billion market cap, filed bankruptcy in July 2001 with stock at $0.06
• Priceline.com lost 97% of its value
• Cisco Systems lost 80% of its stock value

What It Looked Like From Inside

The first week of April 2000, the NASDAQ dropped 25%, worse than Black Monday in 1987. A trillion dollars in stock value evaporated in less than a month. But here's the thing: it didn't feel like a singular event. It felt like a slow-motion car crash that kept happening.

Redmond was Microsoft territory, and Microsoft weathered the crash better than pure-play internet companies. But the ecosystem around it didn't. Startups that had raised rounds at insane valuations suddenly couldn't make payroll. People who'd turned down cash bonuses for stock options watched those options become worthless.

Running Core Logic through this meant watching our potential clients' budgets evaporate. Companies that had been eager to sign contracts suddenly went silent. The ones that didn't go silent went bankrupt. Collecting on invoices became an achievement.

When Your Clients Disappear

The dot-com companies were spending freely on everything—including software services. When they stopped spending, the ripple effects hit everyone in the ecosystem. We weren't selling overpriced banner ads or building money-losing e-commerce platforms. We were building real software. It didn't matter.

A prospect you'd been cultivating for months would vanish. Their office emptied. Their domain expired. The check that was "in the mail" never arrived because the company no longer existed.

The math of running a company with employees during a crash is brutal. I learned this firsthand at Core Logic. Payroll doesn't care about market conditions. Rent doesn't care. You make decisions with incomplete information while watching the environment deteriorate. Every month that your clients survive is a victory.

The Delusions That Seemed Rational

Here's what people forget: the underlying thesis wasn't wrong. The internet really did change everything. E-commerce really would become dominant. Online advertising really would become a massive industry. The timing and the valuations were insane, but the direction was correct.

This made it harder to see the bubble. When someone pointed out that Pets.com couldn't possibly justify its valuation, the response was "you don't understand—e-commerce is going to be huge." And e-commerce was going to be huge. It just wasn't going to make Pets.com profitable.

The survivors (Amazon, eBay, Google) proved the thesis right. Amazon dropped 77% during the crash but came back to become one of the most valuable companies in history. The difference between survivors and casualties wasn't about being right about the internet. It was about having actual business fundamentals while being right.

The Layoffs Weren't Quiet

Modern tech layoffs happen via email at 6am with immediate access revocation. Dot-com layoffs were messier. People came to work and found the doors locked. Security guards explained. There were literal crying sessions in parking lots.

I watched a company that had just finished a $50 million buildout of a gorgeous office space shutter within six months. The furniture was auctioned. The Herman Miller chairs that cost $800 each sold for $50. Startups furnished entire offices from the wreckage of failed companies.

Unemployment rose from 3.9% in December 2000 to 6.3% by June 2003. But that national number hides the concentration. In Seattle, in San Francisco, in Austin (the tech hubs) the devastation was concentrated. Whole apartment buildings emptied. Restaurants that had two-hour waits suddenly had open tables.

What Actually Killed Them

The companies that died fastest shared common traits:

• Revenue was theoretical. "We'll monetize the users later" became a death sentence when later never came
• Burn rate was a badge of honor. Spending $10 million a month meant you were serious. It also meant you died in months when funding stopped
• Employees were expensive. The war for talent meant $150K salaries for people with two years of experience. Fixed costs that couldn't be cut fast enough
• Infrastructure was physical. Before AWS, scaling meant buying servers. Those servers became expensive paperweights
• Market timing was everything. Companies that would have succeeded in 2005 failed in 2001 because the funding environment collapsed

The Survivors Had Something Different

Amazon survived with $2.2 billion in debt and stock down 77%. They survived because they had actual customers buying actual products generating actual revenue. The path to profitability was visible, even if distant.

Google launched in 1998 and went through the entire crash. They survived because they had found a business model (search advertising) that actually worked. They didn't go public until 2004, after the carnage cleared.

The pattern among survivors: either they had real revenue, or they had enough runway to get to real revenue, or they had a clear path to profitability that investors still believed in. According to analysis of startup failure patterns, over 50% of public dot-com companies failed by 2004, and venture funding collapsed 95% from its 2000 peak. Everything else died.

The Lessons Nobody Learned

We tell ourselves we learned from the dot-com crash. We didn't. Every subsequent bubble (real estate in 2008, crypto in 2022, AI today) follows the same pattern. Underlying technology with real potential gets hyped beyond reason. Valuations detach from fundamentals. "This time is different" becomes the mantra. Then reality reasserts itself. And in each cycle, founders push themselves to exhaustion chasing valuations that evaporate, shadow burnout hidden behind metrics.

The difference between dot-com companies and modern tech startups is mostly surface-level. We still have companies with no path to profitability. We still have valuations based on growth rather than earnings. We still have founders who believe market dynamics don't apply to them.

What changed is the speed of scaling and the availability of capital. It took Pets.com months to raise money; modern startups can close rounds in days. This makes the boom faster and potentially makes the bust faster too.

What It Taught Me

Running a company through a crash teaches you things that reading about crashes can't. I discovered that smart people can be completely wrong. I learned that funding isn't validation—it's just funding. I learned that the market can stay irrational longer than you can stay solvent, but eventually it stops.

Most importantly, I learned to look at fundamentals. When someone tells you valuation doesn't matter because of growth potential, they're telling you they haven't learned the lesson. When a company can't explain how they'll make money, they're not just being strategic—they probably don't know. After 30 years, this is why I'm skeptical of any pitch that can't answer "how do you make money" in one sentence.

I've done technical due diligence on dozens of startups since then. The ones I flag for concern are usually the ones that sound most like 1999: amazing technology, passionate founders, unclear path to profitability. Sometimes they succeed anyway. Usually they don't.

The Warning Signs (Then and Now)

The technology changes. The patterns don't.

Survival Checklist for the Next Correction

If 2026 is the year AI funding dries up—and the patterns suggest we're overdue—what should a founder do today? Not next quarter. Today.

1. Know your runway to the day, not the quarter. Pets.com thought they had time. They didn't. Calculate your cash-out date assuming no new revenue. That's your real deadline. Everything else is optimism.

2. Cut the "growth at all costs" spending now. The companies that survived 2001 had already cut before the crash. They looked paranoid in 1999. They looked smart in 2002. Marketing spend that doesn't convert to revenue within 60 days is the first thing to go.

3. Build a path to profitability you could execute in 90 days. Not a path that requires three more funding rounds. A path that works if funding disappears tomorrow. Amazon had this. WebVan didn't. That's the difference between a 77% stock drop and bankruptcy.

The founders who survived the dot-com crash weren't smarter. They were more paranoid. They assumed the worst before the worst arrived. That's the only lesson that actually transfers.

"The difference between survivors and casualties wasn't about being right about the internet. It was about having actual business fundamentals while being right."