Henry Blodget is bullish on the Big Apple.

In part one of Portolio.com's exclusive interview with the former high-flying Merrill Lynch tech analyst, Blodget talked about how Viacom and Yahoo missed out on Facebook and why New York doesn't get the tech respect it deserves.

In this installment, in which he says he "worships" Mark Cuban, Blodget identifies a silver lining to getting booted off Wall Street—perspective—and offers advice to technology investors and start-ups. He elaborates on the cultural differences between Silicon Valley and New York, and talks about why "Joost is the PointCast of 2007." (That's not a good thing.)

PORTFOLIO.COM: With the proximity of media and money in New York City, why hasn't startup culture flourished more robustly? Someone recently suggested to me that New York is at a fundamental disadvantage to Silicon Valley and even Boston, because there is no major engineering-focused research university in the city, à la Stanford or M.I.T. What's your reaction to this hypothesis?

BLODGET: I think a start-up culture is flourishing in New York—it just spans a lot more industries than Silicon Valley's, (law, finance, accounting, consulting, advertising, etc.). The Valley's success in high-tech, meanwhile, has to do with a lot more than proximity to Stanford.

Proximity to previous generations of tech companies such as H.P., Intel, Oracle, Yahoo, etc., is far more important, as is a more forgiving view of failure. But engineering talent is now global, and even many Valley companies are now outsourcing their engineering to India, China, et al.

There is a huge amount of engineering talent in New York. One challenge tech companies here do face, of course, is that engineers do occasionally choose the vast cash salaries of Wall Street over the less-certain bonanza of stock options.

PORTFOLIO.COM: And related: because of the lack of a real tech/engineering culture in New York City, do you agree that the bulk of the startups here will be either media or finance-oriented?

BLODGET: New York doesn't have the same density of, say, enterprise software or chip-design firms as the Valley, but there are plenty of real "technology" businesses here. (In the current generation of start-ups, Panther Express and Pando come to mind). Media, advertising, and finance are deeply woven into New York's D.N.A., so obviously many N.Y. start-ups are focused on these industries.

PORTFOLIO.COM: What can you tell me about your forthcoming list of Alley power brokers? Surely, the ubiquitous Joost will make the list. What's your take on them?

BLODGET: I could tell you, but then our Managing Editor would have to kill me. I will say that No. 1 on the list is an absolute shoe-in, but I'd be willing to bet that almost no one would immediately think of him/her.

As for the Joost folks, I'm afraid that we have a far more skeptical view of the company than most analysts. We obviously understand why the big media companies love them, but the software has major technical challenges, and we just don't think users are that crazy about the service.

Internet users hate "programming," and Joost is all about programming. In fact, we've actually suggested that Joost is the PointCast of 2007. (Never heard of PointCast? In 1995, people thought it was going to be bigger than Netscape. Until users got so annoyed by its technology that they started stripping it off their computers).

PORTFOLIO.COM: Lessons learned from Bubble 1.0? Any advice to tech investors now? Any advice for Alley startups?

BLODGET: My advice for almost all investors, tech and otherwise, is simple: Buy low-cost index funds. The one positive side-effect of getting booted out of your industry is that you can get some real perspective.

It wasn't until I stepped back and looked at the evidence that I realized just how hard it is to consistently pick stocks that beat the market. (And even when you're better than average at it, transaction costs and taxes usually clobber your returns).

Eight out of 10 full-time professionals don't beat the market, and unless you are extraordinarily talented or lucky you won't either. I realize this is hard to believe, but I think anyone who actually takes the time to understand how tough the competition is and how long the odds are will eventually agree with me.

As for lessons from Bubble 1.0, here are some:

• If you are running a company, raise much more money than you think you'll ever need.


• If you aren't a full-time professional investor with a major edge (i.e., a venture capital firm or IAC), don't even think of investing in the sector.

PORTFOLIO.COM: What's your take on Mark Cuban?

BLODGET: I worship the guy. Sell a now-worthless company to Yahoo for $8 billion, cash out at the top, then buy and turn around a pathetic basketball team. Talk about multi-talented! And now he comes out and declares that the most exciting medium in history is "dead and boring"—and makes you realize he has a point. We need more people like Mark.

For what it's worth, I also think one of Cuban's perennial advantages—one that many folks in New York should take advantage of—is that he doesn't live in the Silicon Valley echo chamber. Perspective is a wonderful thing.

by Sam Gustin

^{Photograph of Henry Blodget by Imke Lass/Redux}