VCs Agree: "No Bubble" ... But Is Twitter A Sign?
"Double, double toil and trouble; Fire burn, and caldron bubble," chanted the witches of Shakespeare's Macbeth, cooking up trouble. Similarly, are the VCs of Silicon Valley cooking up trouble by helping to fuel a new bubble?
Valuations for venture backed companies are certainly higher than they've been in a long time but are we in a bubble?
The answer seems to be no. At least, not yet.
Yesterday I spoke with veteran VC Bill Davidow:
Over on VentureBeat, Riley McDermind spoke with Phil Black, co-founder of True Ventures VC firm:
At Y Combinator Paul Graham, a veteran investor in early-stage companies, says there is no bubble.
I went to see PayPal alumni Peter Theil and Max Levchin speak recently, both are very active investors. Both agreed that were was no bubble in tech.
Peter Thiel: There is no bubble in tech. This is not like 1999. But valuations are all over the map.
Olivia Oran on TheStreet.com yesterday wrote an article headlined: "Tech Market: Frothy, but no Bubble."
However, Therese Poletti, over at MarketWatch did find Kathy Smith, principal at Renaissance, in an article on 2011 Tech IPOs:
Foremski's Take: I agree that there is no bubble. At least not yet. But our understanding of a bubble is very extreme. In Silicon Valley, a bubble is only a bubble when large numbers of investors are funding companies with little or no revenues. That's clearly not the case.
High valuations set high expectations and the investment risk is far higher than a year or two ago. And there is lots of money around looking for high returns. The valuations in the top tier of pre-IPO companies show no signs of slowing and that could hurt the return of a strong tech IPO market.
Silicon Valley needs good exits to pump money back into the system and nurture the next generation of startups. With high valuations, the IPOs of companies such as Facebook, Zynga, Twitter, etc, could fall flat because all of the upside has been locked in by earlier investors. That could hurt the prospects for other tech IPOs.
While the top-tier venture backed companies such as Facebook, Groupon, Zynga, etc all have very strong revenues, most in the billions of dollars, there is one standout that has relatively tiny revenues ($45 million estimate for 2010) and a sky high $4.2 billion valuation, that's 100 times revenue.
Will Twitter become the poster child of the next bubble? The Wall Street Journal thinks so, calling it a "tech bubble barometer." (Via Andy Beal.)
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Here is fun video "Here Comes Another Bubble" by The Richter Scales:
Here is a Pearltree on the Silicon Valley Bubble.