Are we rushing into a new dotcom bubble?
Have we learned nothing from the 2000 dotcom bubble? Asking this question has become more significant than ever now even the big venture capitalists themselves start ringing the alarm bells. Over the past 5 years a steady $20 to $30 billion dollars worth of funding has found its way into the tech startup industry each year. Now looking at the second quarter of 2014 alone, nearly $14 billion dollars of venture capital has been reported – the highest amount since 2001. While this is nowhere as crazy as the $105 billion poured into startups at the height of the first bubble, venture capitalist Bill Gurley does note a trend of a much higher ‘burn rate’ of the funding raised. Gurley points here at Uber, one of the tech start-ups he owns a large stake in himself. As he puts it “It becomes an arms race, and that’s the real problem… If you say I’m going to be prudent and I’m not going to have a high burn rate’ and the other guy hires four times the sales force you do, it might not work for you.”
The ‘cash burning culture’ resulting from this arms race is said to be unsustainable over a longer period of time, yet investors are pouring money in start-ups with an ever increasing rate. Why?
I believe the answer lies in the fact that some of these tech ups are indeed blowing up to be the ‘next big thing’, resulting in profits large enough to keep investors in the game. Investors are opportunistic in nature and many of today’s VC’s have not experienced the 2000 dotcom bubble first handedly. Are we rushing into a new ‘burst of the bubble’ or will these tech start-ups actually live up to their potential? A question perhaps soon to be answered.
MacMillan D., Koh Y., Winkler R., Rusli E., Austin S., (2014), ‘Startup Risk: Bill Gurley’s Warning Triggers Debate in Silicon Valley’, Wallstreet journal, URL visited on: September 22nd, 2014 (http://online.wsj.com/articles/startup-risk-bill-gurleys-warning-triggers-debate-in-silicon-valley-1410900716)
Wohlsen M. (2014), ‘Money Is Pouring Into Tech Like It’s 1999—And That’s Not Good’, wired.com URL visited on: September 22nd, 2014 (http://www.wired.com/2014/09/money-pouring-tech-like-1999and-thats-good/)
Ebusinessbook.nl (2010), ‘the return of the dotcom bubble?’ URL visited on: September 22nd, 2014 (http://www.ebusinessbook.nl/images/3.The%20internet%20hype%201997-2001.png)