Tuesday, July 26, 2011

A Call for Tech Exuberance

Fortune Magazine’s July cover story entitled “Don’t Call It the Next Tech Bubble…Yet” is a must-read for anyone who plays in or supports the growth and development of the US technology community.

Contributing writer David Kaplan ponders the sustained viability of the current rush of Web 2.0 IPOs and venture capital funding within the context of the psychology that is now defining Silicon Valley and Wall Street.  He concludes:

The consensus is that there remains sufficient fear in the marketplace -- be it on Sand Hill Road or Wall Street -- to prevent exuberance from becoming totally irrational. For there to be a bubble, the wisdom goes, greed must overcome fear. And for the moment fear still rules, which means the memory of 2000 lives.

Image Source:  Fortune
While I understand Kaplan’s rationale, what scares me about this current financial frothiness is that it’s based on unrealistic investor expectations.  For instance, LinkedIn is trading at 750 times its estimated 2012 earnings, while the rest of the market stands at 12 times forward earnings.

Now consider real estate site Zillow’s arrival last week in the public markets with an IPO that jumped 120 percent on its first day of trading.  After leveling off a bit, the stock still trades 79 percent higher than its initial listing price.

Last time I checked the residential real estate market that Zillow depends upon remains flat and lifeless.

Personally, I’m putting this fear aside because the continued long-term success and global leadership of our country’s technology, biotech, science and engineering communities is based on big bets.  And it takes money to fund that betting.

If Zynga, LivingSocial and Groupon can each potentially raise$1B from the public markets…amen.   Put that money to good use through investments in technical and product development.

These Web 2.0 dynamos will serve as a breeding ground for innovation, as well as the creation of the next generation of entrepreneurial, executive and engineering talent.

Let’s be realistic, yet embrace a healthy shot of exuberance.      


Elias Shams said...

Marc, There ain't going to be another bubble. it’s just time for such a hot space to enter into a new category. Here is my 2cents on this whole internet -> search Engine -> Social media things and my rational on why there is a need for a portal to provide a quick and intelligent decision for both the consumer and the companies about their online connections. A Platform to Help us to Distinguish Our Quality vs. Quantity Friends, Fans, Followers, and Companies:

- Early 90s: WWW was born…
- By mid 90′s: millions of sites popped up on the Web…
- Mid – late 90s: Yahoo & Google were born to help us to find the right information of the right pages on the Web…
- Early 2000: Social media was born…
- Late 2000: Millions of pages created by people, companies, and organizations on all these social media channels.
- 2011: Deja vu all over again… we are back to early 90’s…
- 2012 and beyond…the days of just setting up a website or blog to promote yourself, your talent, your business, and your solution offerings AND creating a page for them on Facebook, LinkedIn, are Twitter are O-V-E-R!. Your social media pages and sites should be on a place where the vast number of users and communities can easily find you, learn about you - AND - express their opinion/rate you and your goodies. If you are confident you are selling something awesome, you need the power of the crowd to promote you (and your company) anyway.

That is exactly why I built http://awesomize.me - the portal to all your existing social media channels.

Anonymous said...

In bubble 1.0 I remember actually going back to my grad school textbooks on valuation to check if something dramatically changed in the world of finance. It turned out that it didn't--companies then couldn't trade at 750x pro forma (translation: we just made this up) earnings.

And they couldn't and the bubble popped. And we were left with companies like Yahoo, Google and tons more and the world is a better place.

I think we're in bubble 2.0 because basic models of corporate valuation have not changed.

And I don't have a problem with this. To create big value, you have to take some big bets and a few things are going to go wrong along the way.

Give me a bubble any time, when entrepreneurs have access to the capital they need to test their ideas in the marketplace.