ADOTAS – Nothing like a little Chicken Little-style “sky is falling” action to inject some life into this dead news season. Both Newsweek and The New York Times are trying to get the Tech Bubble 2.0 bandwagon rolling, mainly based on the prognosticating of Union Square Ventures’ Fred Wilson, who claimed in a recent blog that investors are making “unnatural” moves due festering competition between themselves over the last six to nine months.
He’s having flashbacks to 1999 — back then he ran Flatiron Ventures, which had most of its portfolio decimated by the dotcom bust and folded in 2001.
But the timing for bubble speculation is perfect in the wake of Groupon rejecting an acquisition by Google. A flurry of tech commentators think Groupon was foolish to turn down Google’s way-too-high $6 billion asking price — the company was only valued at $1.35 billion eight months prior.
Valuations also seem out of control. Twitter, which Wilson’s Union Square Ventures invested in early on, announced it won’t sell itself for $4 billion or $5 billion (apparently it was offered the former) and appears to be heading back to the teat for more funding. The microblogger has plenty of teats to choose from as three major venture players are elbowing for position. Another Union Square pet project, FarmVille-maker Zynga, is valued at $5 billion and is acquiring smaller competitors like there’s no tomorrow, including Words With Friends champions Newtoy last week.
In addition, a plethora of venture capital is rolling into social startups such as inter-operation messaging system Yammer ($25 million) and blogger Tumblr ($30 million) — intriguingly, the latter has been down for about a day. NYTimes claims investing in technology companies is once again highly fashionable — which means the so-called “dumb money” is beginning to circulate into the market. Perhaps 1999 is calling…
The online advertising industry in particular has seen large amounts of funding — real-time bidding platform AppNexus collected $50 million during a recent round led by Microsoft while social media platform builder Buddy Media took in $28 million from WPP and Institutional Venture Partners among others. And those are only the big, big ones — press releases regarding less-than-$10 million rounds have been flooding my inbox, with two just announced this morning.
There’s plenty of flip side to the bubble trouble hullabaloo, as some VCs note that the spending is comparatively conservative compared to the late ’90s dotcom boom — granted, technology costs have also dipped significantly, sinking the barriers to entry. There’s also the fact that most initial dotcoms had no business plans — they were one-trick ponies that had no hope of making it to the big show. Contemporary startups — and VCs — learned their lessons from the late ’90s debacle (OR DID THEY?!?!?).
In addition, the online advertising industry was in its infancy, while now it’s bringing in nearly $25 billion annually according to the IAB. Online revenue is not the mythical creature sung about at the turn of the millennium.
Finally, Business Insider’s Jay Yarow adds that “the froth is limited to the early-stage venture market and, possibly, a few high-profile acquisition candidates. Most public-market valuations are still completely reasonable.”
We could have a bubble on our hands, but it certainly won’t be the same as the last tech bubble. The biggest drag, though? We won’t know if it’s a bubble until it’s burst.