It's more bubbly than it was 2 years ago, but still nothing like the Bubble in the late 90s. The defining quality of an investment bubble is people (a) investing a lot of money in stupid things, in the hope that (b) other people will pay more for them later. Neither are happening now. Though a lot of startups are getting started, the amount being invested is small, because startups are taking way less each. And (b) isn't happening because the IPO market is still very small. Acquisition is still the main exit, and acquirers are more prudent than retail investors.
As recruiting good quality talent becomes harder and it becomes cheaper and easier to build a web application, the only competitive advantage left to entrepreneurs who are genuinely going to create value is savvy product sense and the ability to actually exploit a business opportunity.
I don't believe we're in a bubble (in the sense of a liquidity event) - but certainly the number of people who have never before considered starting a web business who are wanting to give it a go are coming back again.
the number of people who have never before considered starting a web business who are wanting to give it a go are coming back again
Those people are here to stay for as long there are startups who make succesful exits and get talked about. The process looks so damn easy. Make a small app quickly using a nice platform like rails in only a few weeks and then flip it for millions. Why wouldnt you give it a try?
Presumably one would be smart enough to pull the ripcord as soon as possible. Don't wait for that 50m valuation, get out at 5m and take home a modest house instead of a yacht and a summer home in the Hamptons.
No. A bubble happens when you have a huge number of trades at prices well above the fundamental value of items being traded. In this case I assume the items we're referring to are "small, internet-oriented companies". At least right now there is not a high enough volume of trades happening to drive prices up into the astronomical range characteristic of a bubble.
In this instance if we consider the variable the number of investments being made into internet startups are we seeing bubble like behaviour? Are valuations much higher now (artificially so - post youtube etc) than before? Is this leading to herd-like behaviour both in entrepreneurs looking to create opportunity and investors chasing deals?
There might be some deals going on in anticipation of a bubble. Sort of hedge deals being made to guarantee a spot on the leading edge of some hypothetical bubble. But I don't think all the deals fall into that category and many of them are pretty legitimate investments and at fair prices.
This feels a lot different. The barrier to entry has dropped a lot, so we're seeing lots of small start-ups as opposed to the gigantic ones last time around. Also the monetizing seems to be coming from larger tech companies (Google, Yahoo, etc.) as opposed to non-technical outside investors.
I don't think the successful startups this time round have adsense based business models &/or depend upon acquisition.
For example photobucket has built a ver impressive subscription business and facebook is finding interesting (in addition) to traditional ways to moetise its vast userbase (facebook gifts if projected to make $15m this year)
I just feel the cheaper startpoints mean that there will be sufficient darwinian evolution for the better startups to succeed. We're going to see more failures but less flameouts like pets.com or boo.com which took a lot of money but weren't nimble enough (because of the cost & state of infrastructure) to change direction.
Definitely.
Unlike what pg thinks, it seems to me that there are a lot of stupid ideas out there that get funded, and that most of them are merely features rather than full blown products, that simply wait for someone to buy them.
I think we're going to see far more companies fail than succeed in this current boom, but the crazy optimism of the first bubble seems gone. The bets are smaller and more numerous, so some are bound to take off.
