Talk of a bubble in the tech market certainly isn’t new … and no, I’m not referring back to the go-go days of the late 1990s. As valuations for the likes of Facebook, Twitter and LinkedIn have soared well above the billion-dollar mark, the chatter has increased in volume.
And, I’m now hearing the same hushed questions I did more than a decade ago, but they all come down to the same issue: how high can valuations climb?
In a way, it feels like 1999 all over again. I still have my scars from the dotcom bust, along with fond memories of sock puppets, ‘black rockets‘ and the importance of a company’s ‘story’ over its business model. While some cases don’t feel as egregious today, there is nonetheless plenty of fodder for the ‘bubble’ question.
Facebook, which reportedly has revenues of just under $2 bn, has attained a pre-IPO valuation of above $60 bn. Twitter, Zynga and LinkedIn join the list of private companies with estimated 10-digit valuations.
When you dig a little deeper, as Michael Arrington, founder of tech blog TechCrunch, did yesterday, the mounting evidence of a tech bubble becomes harder to ignore:
And there is some evidence laying around. Valuations on a few select private tech startups are pretty darn high right now. And valuations on early stage “Series A” startups have surpassed the all important $4 million line and are now averaging in the $6 million – $8 million range.
Yet, Arrington goes on to say that it’s not so bad:
But this isn’t a bubble. It’s more like a Blubble.
A Blubble? Yes, a Blubble. Because there is a lot of whining going on.
He observes that the biggest problem during the boom in the late 1990s was that nobody had any idea how to value internet companies, an issue that has been resolved in the decade following the bust. Also, businesses have gotten smarter, he continues, especially in sales and marketing, which were financial sinkholes last time around. Today, the emphasis is on hiring engineers, which has obvious implications for product quality.
What’s interesting is that Arrington isn’t alone in his assessment of the current pre-IPO tech market. In his opening address to the Business Insider IGNITION conference in early December, I remember Henry Blodget, CEO and co-founder of Business Insider, saying quite clearly that the high valuations we’re seeing are not indicative of a bubble.
Sure, we’ve all heard that story from him before (let’s not forget the Amazon price target from the good ol’ days), but it is starting to look like 2011 is a lot different from 2001.
So, what comes next? Is what goes up forced to come down? If that really is a law of financial nature, will tech valuations reach sufficient heights to trigger it?
Absent a crystal ball, we’re in a position to wait, watch and negotiate prudently until the big moves start to come. With LinkedIn’s IPO filing, though, it feels like the clock is ticking.