A Silicon Bubble Shows Signs Of Reinflating
dealbook.nytimes.com
dealbook.nytimes.com
Those three companies have about $90 billion in cash on their books. McKinsey & Company calculates that the largest software and hardware companies have enough excess cash on hand to buy nearly all of the tech industry’s medium-sized companies.
As long as there is this kinda cash sitting with companies wanting to buy, there will be companies made. Cash is cheap nowadays and there are lot of people/companies willing to bet.
mobile tech, wireless access, cloud/aws, linux maturity, etc.. - everything culminated to make whole tech companies so disruptive, no other field is ripe with products or speed of innovation.
Wait, wasn't that the storyline for another recent story....
Last I checked, Tumblr was on the 100 most visited websites list. That's pretty good for a "niche" blogging site.
This story is pure sensationalism, most of the companies listed have proven business models or at least substantial traction.
“I’m not saying Quora, Foursquare, Square aren’t eventually worth a lot of money, but the price to pay to get into those games is kind of amazing — $50 to $80 million?” said Dave McClure, founding partner of 500 Startups, a technology incubator in Silicon Valley. “These companies are in big markets with proven founders, so maybe not absolutely crazy but certainly eyebrow-raising.”
"The chief evidence, according to industry experts and analysts, is the way venture capitalists and established companies are clamoring to give money to young companies, including those with only a shred of an idea."
This just seems inaccurate. All of the companies mentioned in the article (and most of the companies that seem to get funding) at least have a functioning product or service. You still have to actually build something.
Take Yammer - it's not difficult to build. People made identi.ca in their spare time, for free. If Yammer turns out to have a real market, competitors in the intranet space can easily add a similar product to their line. How is a $40m VC investment justified? My guess is that the investors are betting on selling Yammer to a bigger company. This is what's known as "find a rich sucker" (or "AOL") business model, and is typical of a bubble.
To determine if it's a bubble, you don't look at the companies or products. You look at the investors. If they are loose with their money, that's when you know.
they really got that one wrong
All of these companies have scaled their architecture to support millions of daily users. They have managed to reach their target market and many of them are already profitable. The developers behind these sites aren't folks who picked up a "Dummies Guide to HTML5" on a weekend. Many of the interesting articles posted on HN are by the founders and/or people running the operations at these companies (e.g. http://www.marco.org).
Or in other words, Starbucks could also have been mismanaged. And http://www.peapod.com/ is still in businesses.
As others in this thread have pointed out, the key distinction between bubble 1.0 and 2.0 is complete nonsense vs. real value.
Most likely currently hugely overvalued value, but still real value.
After bubble 1.0 burst, it hurt the very concept of business on the internet badly.
When 2.0 bursts, a very few companies will close shop, the rest will simply be worth a lot less and lay off people but will return to operating profitably as before.
I wouldn't call Farmville "very useful." I don't think my mom's life would be worse without Bejeweled.
The paint with a broad brush trends at which they "tsk, tsk" without presenting the data, discussing what criteria constitute evidence of "bubbling", or demostrating overvaluation.
Consider:
"The chief evidence, according to industry experts and analysts, is the way venture capitalists and established companies are clamoring to give money to young companies, including those with only a shred of an idea. "
Which "experts and analysts"? ?All? of them? Do none dissent? How much of "an idea" is "as shred of an idea." Do they mean "only a shred of a business plan?"
I believe this meets the criterion for "a bubble of journalism."
Look out for Rupert: it seems the NYT has surrendereed.
There are massive opportunities, and the capital cost & lead time, at least in the earliest stages, are not nearly so bad as people assume. Working on design and theory costs roughly as much as a web startup -- founder's living expenses, some time at a machine shop, a few sourced parts.
At least that's how it was for us.
I think that the valuations, if you look from afar, are can seem pretty staggering as well, but I think that burn rates can be made low with the right approach.
Have you looked into government grants? It's a very different process and set of expectations than a pitch deck, but the capital is non-dilutionary and there is a bunch of stimulus money sloshing around. Obama seems to recognize that the future US economy will be in biotech and greentech.
Just so people don't miss interpret what I'm saying: I do think we should try to prove medtech is safe and does something. But I think the quantity of proof we require slows down innovation tremendously. And the penalty we pay for bringing things YEARS to market later then we could have is human lives.
I understand why web apps are easy to understand, if done well. But opportunities in greentech and medtech seem like a huge unmet need. We have health and defense grants to fall back on, but for seed-type money we can bring a product to the medical market. That to me is where a quiet revolution is already underway.
Cleantech (and medtech) are fascinating, but I don't have the thousands of hours of focus that I've had on webtech. It feels like I'm just analyzing the numbers when I look at those deals, and that makes me a bad angel there.
I'd consider a VC fund with some background in it, though.
Is Groupon a bubble? Sure. Is there a pot of gold inside of it? You bet.
In 2000, we had a lot of companies pre-profit having an IPO. It got so crazy that companies got into the IPO-business, you could drop anything on the public markets (it seemed) and watch the price skyrocket.
This is all private investing, not public offers. And it's a big difference between what a bunch of rich guys do with their extra money than what grandma does with her retirement fund. It's also different from the housing bubble, which involved huge swaths of public money and touched anybody with a mortgage. If you're a big believer in free markets (I am) then this is exactly what rich guys are supposed to be doing -- gambling their money on a horde of young bucks with crazy ideas to change the world (or little parts of it). I'd also point out that startups today are much sounder financially than they were back in 2000. So while it may be a bubble, it's a bubble we can easily live with. We could use more bubbling, actually.