As Tech Deals Boom, Talk Turns to Bubbles(dealbook.nytimes.com)
dealbook.nytimes.com
As Tech Deals Boom, Talk Turns to Bubbles
http://dealbook.nytimes.com/2010/11/19/as-tech-deals-boom-talk-turns-to-bubbles
9 comments
If there is a bubble it's not much to worry about since the investments are fueled by savings and not debt.
Do you have any evidence of that? Have you looked at the price of money these days? 2%? 4%? Junk spread as low as 1-2? With QE the price of money is being artificially driven down to drive investment. The dirty little secret is that a lot of that investment comes from borrowing - why not if your numbers show you making 10%-20% and you can borrow for 5%-10%?
The last time the fed held the yields so low and pumped money supply so greatly was the dot-bomb. And a lot of that was shown to be driven by debt when post-mortemed.
Do you have any evidence of that? Have you looked at the price of money these days? 2%? 4%? Junk spread as low as 1-2? With QE the price of money is being artificially driven down to drive investment. The dirty little secret is that a lot of that investment comes from borrowing - why not if your numbers show you making 10%-20% and you can borrow for 5%-10%?
The last time the fed held the yields so low and pumped money supply so greatly was the dot-bomb. And a lot of that was shown to be driven by debt when post-mortemed.
He is referring to VC investments, which ARE fueled by savings. The LP's of a VC fund are ultra high net worth individuals and pension funds; neither of which invest in alternative asset classes with debt.
how many Twitter services do we need when no one can decide if we even need Twitter
Truer words were never spoken. True, there are many people who find Twitter eminently useful, but there are far more who can't seem to figure out what the hell it's for, and I suspect many at Twitter HQ of belonging to the latter group. There are a glut of startups right now that don't really do anything useful, but have had no problem getting funded. The investment model seems to have moven away from "where's the market going to be in 3-5 years" to "if we invest in a spaghetti website, a sailing-meets-geocaching website, a cake-delivery website, and a social media microblogging iphone app, then surely one of them will hit."
Truer words were never spoken. True, there are many people who find Twitter eminently useful, but there are far more who can't seem to figure out what the hell it's for, and I suspect many at Twitter HQ of belonging to the latter group. There are a glut of startups right now that don't really do anything useful, but have had no problem getting funded. The investment model seems to have moven away from "where's the market going to be in 3-5 years" to "if we invest in a spaghetti website, a sailing-meets-geocaching website, a cake-delivery website, and a social media microblogging iphone app, then surely one of them will hit."
It smells like a bubble, but this time around, there are fewer IPOs and the big buys are acquiring for talent too. With the advent of facebook v google talent grabbing, it makes sense to buy startups with crazy smart people early.
This article also needs to take in account of the super angels and the new face of investing these days. Sure, a lot of deals are happening, but a lot of the early funding is coming from many sources and the angels are spreading thin. Come on, NYTimes, did you forget Angelgate?
This article also needs to take in account of the super angels and the new face of investing these days. Sure, a lot of deals are happening, but a lot of the early funding is coming from many sources and the angels are spreading thin. Come on, NYTimes, did you forget Angelgate?
Question for those of you working inside of big companies:
I am sure many of you are getting recruited to join startups. What's the general sentiment in this demographic - are you guys torn between feeling like you should join a hot opportunity now, but in some ways afraid that you might give up that 6-figure salary only to get hit by a burst bubble in mid-2011 and would have to crawl back to a more stable corporate gig?
I am sure many of you are getting recruited to join startups. What's the general sentiment in this demographic - are you guys torn between feeling like you should join a hot opportunity now, but in some ways afraid that you might give up that 6-figure salary only to get hit by a burst bubble in mid-2011 and would have to crawl back to a more stable corporate gig?
As someone, in their mid twenties, who is currently transitioning from a big company to a startup:
The stability question will always be there, regardless of the existence of a bubble. With a startup, there's always a greater risk of losing your job. If it was about a 6 figure salary, I would just move to another big company, many of which are hiring right now.
A fast paced high risk environment is what I'm interested in, and what I think is best for my career and learning. This transition is a non-issue for me, and independent of market trends.
I don't think 'crawling back to a more stable corporate gig' is a reliable backup plan. However, if I did, why would I lament? I would probably be hired with a comparable salary to that if I stayed on and grew from promotions. More importantly, I will have gained more in the process.
The stability question will always be there, regardless of the existence of a bubble. With a startup, there's always a greater risk of losing your job. If it was about a 6 figure salary, I would just move to another big company, many of which are hiring right now.
A fast paced high risk environment is what I'm interested in, and what I think is best for my career and learning. This transition is a non-issue for me, and independent of market trends.
I don't think 'crawling back to a more stable corporate gig' is a reliable backup plan. However, if I did, why would I lament? I would probably be hired with a comparable salary to that if I stayed on and grew from promotions. More importantly, I will have gained more in the process.
The higher numbers re: valuations I've seen and heard are just under $10M (recent YC startup). Potentially rumors of $20M (Instagram, but was apparently untrue). Not sure which startups are seeing the $30-50M range that Fred Wilson mentions. Clearly, he sees a lot of deal flow, but you'd assume the major tech blogs would cover these startups.
We're in a cheap money environment and tech companies are sitting on piles of cash they're genetically predisposed not to distribute back to shareholders. There's only one place for it to go: acquisitions. Meaning we see more deals at higher valuations. It doesn't reflect anything fundamental.
$30-50M? Seriously, I will quit tomorrow and get a five person team of proven entrepreneurs also put together tomorrow, if I can get a $30M valuation with a VC coming in for 20% of that.
Even if there is a bubble, what does it mean for the app economy? People making money on facebook, twitter, and the App Store might see sales dip if there's a bust, but people aren't going to use free services less. (Although App Store sales won't dip because the app store was built during the last recession).
edit: perhaps this seems naive, but please keep in mind I'm only asking about this one small segment.
edit: perhaps this seems naive, but please keep in mind I'm only asking about this one small segment.
Seems pretty bubble like to me.
If there is a bubble it's not much to worry about since the investments are fueled by savings and not debt. Debt fueled bubbles make losses so much worse for everyone. The worst case is that some investors get wiped out (or at least what they invested was lost) and we all move on having a few good laughs about how crazy we were back then (how many Twitter services do we need when no one can decide if we even need Twitter).
The number of bootstrapped companies out there suggests that at least some people feel like raising money isn't worth it even in this climate so I don't think this time period is all bad for tech.