Boom & Bust
By Peter Prestipino, Editor-In-Chief
Are we in the middle of another tech bubble?
Everywhere you look in the digital world, there seems to be another million dollar venture round for a “somewhat” innovative technology, another multi-billion dollar valuation for a company without an actual business model, and another skyrocketing price during an IPO for a company that has never, ever made a penny. What’s going on?
Second-quarter (2014) venture capital investments totaled $13.8 billion, the most since the fourth quarter of 2000, according to Dow Jones VentureSource. You might just remember what happened back in those heady days of the early ‘Net - they called it a bubble and everything eventually came crashing down. Not all of the stories you may read in Website Magazine’s Movers and Shakers channel (wsm.co/moveshake) are fueling the bubble, but some are - causing many to pause and wonder, if, in fact, this is a bubble, how soon it will pop?
Companies are offering up enormous signing bonuses to developers (or simply acquiring their companies outright), providing insane perk packages for new hires, building lavish offices and throwing grandiose events to amplify the buzz about their products (just see Managing Editor Amberly Dressler’s Oct. 2014 commentary “Drunk on the Keynote Kook-Aid” to understand the severity of the problem). Fortunately, despite often wildly optimistic valuations and feel-good perks for new-hires, many in the technology industry are actively encouraging a step back and a more realistic view.
MOVERS & SHAKERS
See which tech companies and executives were noted and quoted in this issue of Website Magazine at wsm.co/nqnov14
Benchmark Capital’s Bill Gurley recently told the Wall Street Journal, “The venture capital community or start-up community is taking on an excessive amount of risk right now … unprecedented since ‘99,” — an ominous date in the tech world as it marked the peak of the dot-com bubble. Gurley is not alone in his sentiment. Union Square Ventures’ Fred Wilson noted in a blog post that “we have multiple portfolio companies burning multiple millions of dollars a month,” and adding that he is urging his CEOs to cut back on spending and double down on their business models. Valley investor and Netscape founder Marc Andreessen of Andreessen Horowitz also joined in, warning of how the recent spate of mergers and acquisitions (M&A) would cease. “When market turns, M&A mostly stops,” he tweeted, a reference to big buying sprees such as Facebook’s $19 billion acquisition of WhatsApp and Microsoft’s recently announced $2.5 billion deal for Minecraft. “(Then) nobody will want to buy your cash-incinerating start-up. There will be no Plan B. VAPORIZE.”
If there is a bubble, it will likely be far less severe than the previous one. Why? More attention is paid today to the business fundamentals, and many startups are encouraged to focus more on the quality of product rather than the efficacy of its marketing. There is also better technology today, it’s in higher demand and there’s greater digital usage in general. There are many things different this time around and we’re in a far more stable place than 1999 and 2000. Perhaps those in the Web and technology industry really did learn something from the last bubble-induced crash, not to mention from the recession.
Oftentimes, however, it’s common to see companies take a massive funding round just to expand, going into international markets just to show a strong business (taking on an increasingly optimistic tone with each dollar) to keep their virtual head above water for another funding round. Perhaps a bubble is exactly what’s needed. Just maybe it will shake out the fakers and drive another exciting round of innovation, a Web 3.0 if you will, focused on solutions that better serve digital customers, employees of those brands and the VCs that fund them. Will history repeat itself? Maybe, but by focusing on the fundamentals, at least it can be delayed.