Internet Bubble 2.0 is firmly entrenched, with stupid valuations of companies that have never turned a profit. For those that remember the halcyon days of 1998 through 2000 where every half-baked idea would get stupid amounts of funding, it is interesting to see the lessons from then not applied to today.
At this point I am very happy that I have not had a need to take VC or Angel funding because I really want my company to go somewhere on its own merits. That also means I won’t have to close my doors when the Internet 2.0 bubble implodes in the next two years. It is also good to see that this is going on in private equity rather than on the stock market right now, that means less risk for people who are gambling their pensions on stupid valuations in the start-up community. I do not mind if VC’s and Angels lose money, mostly because I am not invested or vested with them at all.
What is triggering this belief today is an oddly ranting rambling blog entry over on the Awl, which making heads or tails of it is difficult if not impossible to determine what the author is really trying to say. The only thing I am pulling out of the article is that along with the many discussions about the web 2.0 valuation bubble happening now to a start-up near you, is that we are to the point now where investments from VC’s and Angels is getting stupid. Not all ideas are equally brilliant, and it is always a good idea to see if the company has a following, or a truly brilliant idea that people will adopt. There are few good ideas but many copycats, and being first to market is not always a sign of a sure winner.
Having experienced speculative manias and over-corrections to the downside in virtually every asset class over the past decade, it seems the question isn’t really whether something is over- or under-valued. The question is, when is the right time to enter and exit a market characterized by cyclic speculation, paranoia, and irrationality masquerading as logic? Source PEHub
And yes, the dictates of investing in a cyclical market, which technology and just about everything else is means there will be winners and losers as valuations rise, but the actual usefulness of the start-up does not rise. While there are going to be celebratory mugs of beer drunk, in many cases it will be the start-up that does not get bought out but as a stupidly high valuation that will be the one to lose.
If you have an exit plan, make sure it happens before all this pops in a couple of years. If you really want to know just how bad it has gotten out there in Bubble Land – read this the numbers are pretty amazing. Really is Facebook worth the ever loftier valuations that I have seen, with some approaching 75 Billion? Probably not, it is a cool platform, but much like MySpace before it, there is a fickle consumer base that it relies on, and customers will depart once being on Facebook is no longer cool. Facebook faces the same issues as MySpace, and the implosion of Facebook will be something to behold.
Now is an awesome time to start a company, but if possible, just avoid the lure of VC and Angel money until valuations come down and sanity returns to the market. I have known a number of companies that have been seized by their investors and liquated; no one wants that to happen to their brilliant idea. I also follow my own advice, for the next couple of years it will be nearly impossible for anyone to invest in my company, mostly because it is my labor of love, and I really want to have it succeed on its own merits and not succeed because of the money from a fund that is more interested in making even more money than helping someone grow an awesome media company.
(Cross-posted @ Managing Intellectual Property & IT Security)