The official position of Business Insider is there is no tech bubble 2.0, despite all the hysterical shrieking we hear from elsewhere.Today’s tech companies are generally real businesses with real profits. The market for public stocks is not overheated. In fact it’s actually pretty cheap right now using traditional valuation metrics.
However, that doesn’t mean we don’t understand why other people think there’s a bubble. Valuations have soared, money for startups has become easy to obtain, and the IPO market is looking a lot less chilly.
Sounds like it’s time to party like it’s 1999, right? Hardly. Read on to see why not.
All signs point towards Facebook having a very strong business, but it doesn't really matter when were talking about a 'tech bubble.' People just see Facebook's $90 billion valuation on the private markets and think the company is overvalued.
Facebook's success has also created numerous new startups, as well as angel investors. Those people have flooded the tech zone indirectly leading to valuations rising, and fights for talent becoming more intensive.
Yuri Milner and DST started dumping money in Facebook before anyone had any idea how big it would be. At the time, everyone thought he was crazy, and thought Mark Zuckerberg was crazy for taking an unknown Russian's money.
It appears to have worked out very well, but it led to surging valuations, and a mentality among tech employees that they could and should start cashing out some of their stock early.
We can't think of another company that has set the tech world into such a state of fury like colour. The location based social photo sharing application touched a nerve when it launched with $41 million in funding. People saw it as excessive and foolish from the investor's perspective. And when they saw the lame product they just felt justified in their snap reactions. So far, the reactionaries are looking pretty good. colour is already scrambling to refocus and build a new product.
Our rebuttal: The colour founders have a track record of building and selling companies. They whiffed on their first pass, but that doesn't mean they're completely toast.
Felix Investments has an interesting position in this tech frenzy. It smartly (and aggressively) started buying stock in private companies like Facebook, Twitter, and LinkedIn. Its decision to buy these private companies drove their valuation higher.
And now Felix Investments is symbolizing the bubble mentality. It has moved on from investing in big private companies to investing in Series A rounds, and its starting a fund for angel investing. Maybe it will all work out. But if it comes crashing down, it will be seen as a sign of the bubble.
For the most part we're talking about a perceived bubble in the land of private tech companies. LinkedIn is the first one to hit the public markets. And on the day it wet public the stock soared from $80 to $120 after being priced at $45.
This had people thinking it's 1999 all over again. Well, the stock has since settled down, and it's not that crazy for a growth company like LinkedIn to see its stock pop early on.
Groupon's S1 had a goofy accounting metric called Adjusted CSOI. It was the company's attempt at getting people to look beyond its marketing costs to see that the company is doing very well. It was rightly ridiculed. No one took it seriously. Yet everyone took it as another sign of a tech bubble. It was too reminiscent of the last bubble where companies didn't have sound businesses.
While it's easy to mock Groupon and its losses, let's not forget it's cash flow positive and it's generating an astounding amount of revenue.
This one is a little bit more abstract than the others but, remember when Kleiner Perkins was basically done with investing in traditional tech companies? It was going all in on green investment and that was going to be the future.
Well, the green scene fizzled, and Kleiner came back to traditional tech investing. It even went as far as to set up the sFund, which invests in social startups.
While it can contribute to bubbly valuations, it doesn't mean we're in a bubble. Kleiner is just making a much smarter bet.
Want to get people really upset? Turn down a $100 million offer from Google for your just started company. That's what Dave Morin, founder of Path, a photo sharing app, decided to do. It looked like a sign that Google had too much money on its hands and startups are delusional about how much they're going to be worth. Whatever.
Would we have taken the money? Probably. But Morin came from Facebook where the smartest decision it ever made was rejecting what seemed like a sweet offer at the time. (Zuckerberg rejected $1 billion from Yahoo.) Maybe Morin is right and maybe Path becomes a monster.
All of the sudden there's a new crop of $1 billion startups. And while Quora isn't technically in the group yet, at least one of its investors told us privately that it should be. That's the mentality out in the Valley right now. Hot startups are worth big bucks.
But is that any different from any other time in history? Have investors ever thought their investments weren't great and worth a lot of money? We don't think so.
All this tech bubble 2.0 talk really started when angel investors began squeezing out VCs who wanted to invest in cheap series A rounds. As angel investors got in early and eventually started investing greater sums of money valuations rose, causing VCs to start complaining that things were getting out of hand.
We think this is pretty bogus. It's great that startups have options and for funding. It's natural that valuations are rising.
So why pick out Ron Conway here? He's the most prolific of the all the angel investors out there and he's now a micro-VC basically. He's doing very well.
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