Bubble, Bubble, Toil, and Trouble
First, for the true fans of the bard out there I know the correct quote is not bubble, bubble but Double, Double. However since this post is about whether we are in another early stage tech bubble, I decided to stick with the misquote. Is the current technology bubble like the one that popped (with disastrous consequences) in 2001? My take is this: yes, but one with a fundamentally better foundation than the flimsiness, silliness, and near fraud that made the 1998 bubble so fragile and toxic.
The 2001 bubble did produce some great companies – Google and Amazon spring to mind. But more importantly, it made the Web central to our personal and commercial lives; a truly historic change whose ramifications are still unfolding. Of course, there was a lot of overhyped *** in the first bubble – everything from e-funeral services to enterprise software companies that went public almost entirely on revenue created by barter deals. As things became really overheated, everybody and his brother wanted to run a startup or a VC firm. (I knew things had gotten way out of hand when the leasing agent for our office hired a full-time person to review prospective tenant business plans and started demanding new tenants hand over 1% of equity in addition to the rent.) Being a programmer was passé, all the cool kids were in Business development, rents went up, and the ratio of Italian suits to pocket protectors in the valley started to match those found on Wall Street or Hollywood Boulevard.
2010 is very different which, I have to say, is “good” for all of us. There is much more detailed and widespread information available about the process of building venture backed companies, thanks to VC bloggers like Fred Wilson, Brad Feld, and Mark Suster. Cloud infrastructure providers (Amazon, Rackspace), OSS, and programs like BizSpark make bootstrapping feasible. This period has also seen several positive changes in the balance of power between founders and VCs, which, IMHO, leads to healthier companies. One of the biggest changes is Naval Ravikant’s fundraising site, AngelList, which has forever changed the rules of the fundraising game. I saw Naval speak at a Vaporware Labs hosted startup-grind meetup (Derek always has great events, you should check them out) last week and he gave amazing advice. I consider him a shining example of an entrepreneur that made it who is giving back to the community. That feeling of a community, of entrepreneurs that support each other, is one of the most positive hallmarks of the 2010+ bubble.
The amount of information available to prospective entrepreneurs is astounding. Sites like Adeo Ressi’s The Funded give information about valuations and who the bad actors on the venture side are. This information will help savvy founders avoid a lot of the heartburn that many founders, including yours truly, went through in the 1990s. The growing number of founder friendly angels, incubators, and seed funds (see list below) combined with the ability to use social media tools like AngelList, Twitter, and LinkedIn to make the right folks aware of what your company is doing, has changed fundraising. Its gone from a process that was best described as a having root canal done without anesthetic to something akin to getting a cavity filled.
By reputation, these are some most founder friendly investors and institutions:
- Founder’s Institute, Adeo Ressi (We will have a table at their San Francisco event on the 15th – come by and say hi.)
- 500 Startups, David McClure
- Brad Feld
- Fred Wilson
- Mark Suster
- Y Combinator
Here’s the upshot. If there is a bubble, it is very different than the one I survived in 2001. Startups live in a more transparent and dynamic world and there is much more focus on changing the world than being a billionaire which is exactly the way things should be.
It may be that the recent successes in the IPO market will bring the craziness back, but I doubt it. For a lot of us, the scars are way too fresh and we are playing the game a different way, focusing on changing the world and counting on the money to follow. This discussions calls out for a “Then and Now” table so without further ado.
|1998 Bubble||2010 Bubble|
|Overpaid Engineers||Overpaid Engineers|
|30 Grand/month for PR||Free twitter account|
|Sand Hill Road||Angelslist|
|Closed source||Open Source|
|Sparc servers in Equinox||AWS|
|Adult supervision||Mark Zuckerberg|
|Go big or go home||Lean startups|
|Aeron Chairs||Standing desks|
|Beer busts||Locally grown snacks|