Doerr vs. Wilson: The Internet Bubble Is Real. That’s Where The Agreement Ends

If there is one thing Fred Wilson and John Doerr can agree on it is this: The Internet bubble is real and valuations are frothier than a Starbucks latte.

Unfortunately, that’s where the merging of the minds ends. In the opinion of the mischievous, sometimes outspoken Wilson, managing partner at Union Square Ventures, the current investment excess is leading to unreasonable startup funding and copy cat business models – a disaster in the making.

In the view of indefatigable optimist Doerr, a partner at Kleiner Perkins Caufield & Byers, it’s all good.

The two larger-than-life personalities met on stage Tuesday afternoon at the Web 2.0 Summit in San Francisco, and the exchange was the highlight of the annual confab. Both said things were out of hand.

“There are some crazy things going on,” puffed Wilson. “It’s getting overheated.”

Startups with three people are getting valuations that top $30 million, he noted. And Facebook’s supposed $41 billion valuable is far from rock solid (instead based on a constrained secondary market), he grumbled.

Indeed, “we’re in another bubble or boom,” concurred Doerr. But “I think booms are good.” By Doerr’s reasoning, excess funding gives more companies the opportunity to experiment and create new business models. More experimentation leads to more innovation.

This simple reasoning is behind the $250 million social Internet sFund that Kleiner Perkins announced last month and which Doerr defended. The spark for the fund was the realization that Zynga Game Network is the most profitable and fastest growing KP portfolio company ever, he said.

Already, the fund has received 600 proposals and “we have six ready to invest in,” Doerr said. He withheld additional details.

On top of this, the IPO window is open, he claimed. Perhaps this is a period of normalcy, where good companies can get out and bad ones can’t.

Or maybe neither want to, shot back a disbelieving Wilson. “There is clearly a reticence about going public.” Businesses such as Facebook and Zynga could go public, he said. Instead a secondary market offers them some liquidity.