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from the double-double-toil-and-trouble-fire-burn-and-market-bubble dept.
Conor Dougherty writes in the NYT that the tech industry’s venture capitalists — the financiers who bet on companies when they are little more than an idea — are going out of their way to avoid the one word that could describe what is happening around them: Bubble “I guess it is a scary word because in some sense no one wants it to stop,” says Tomasz Tunguz. “And so if you utter it, do you pop it?”
In 2000, tech stocks crashed, venture capital dried up and many young companies were vaporized. Today, people see shades of 2000 in the enormous valuations assigned to private companies like Uber, with a valuation of $41 billion, and Slack, the corporate messaging service that is about a year old and valued at $2.8 billion in its latest funding round.
A few years ago private companies worth more than $1 billion were rare enough that venture capitalists called them “unicorns.” Today, there are 107 unicorns and while nobody doubts that many of tech’s unicorns are indeed real businesses, valuations are inflating, leading some people to worry that investment decisions are being guided by something venture capitalists call FOMO — the fear of missing out.
With interest rates at historic lows, excess capital causes investment bubbles. The result is too much money chasing too few great deals. Unfortunately, overcapitalizing startups with easy money results in superfluous spending and dangerously high burn rates and investors are happy to admit that this torrid pace of investment has started to worry them. “Do I think companies are overvalued as a whole? No,” says Sam Altman, president of Y Combinator. “Do I think too much money can kill good companies? Yes. And that is an important difference.”
(Score: 2) by tibman on Monday May 25 2015, @05:11PM
Transitioning from startup to real company is where failure seems to occur. Where the startup use to have 1mil+ of fun money to play with they now only have what is in the sales pipeline. If the startup hasn't even figured out how to monetize the product then they may never ever transition to a real company. In this case they seem to shoot for mega-popular and keep the VC coming. Eventually they have a public offering or just plain sellout to someone who thinks they can monetize.
When my company made the transition from startup to real we lost about 1/3 of the workforce. We also had to cut the office space down by half. A year later the company has naturally grown enough to need a new building. Seems to have survived, which is great because i like getting paid : ) But i wouldn't call it a mega success or a dud. More like a decent investment.
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