Editor’s note: Billy Warden and Greg Behr, who handle media relations for The American Underground startup incubator at the American Tobacco Historic District, contributed the following article.
DURHAM, N.C. – As new media companies roll out billion-dollar IPOs, four CEOs from the American Underground, the RTP startup hub, weigh in on whether the enthusiasm is on target or out of control.
Jason Massey, Sustainable Industrial Solutions:
We are absolutely in a new tech bubble! Anyone that tells you different is financially benefiting from it or was not around for the last Internet bubble.
Having been in venture capital through the last boom and bust the signs are almost identical from the last bubble. While the funding vehicles are a little different, you still see ‘late stage’ investors clamoring to get into hot deals. But instead of trying to get into a rush of IPOs, investors are buying shares through secondary markets. In the last bubble you had undergraduates running incubators. Today, you see some undergrads doing venture capital work.
It is not all bad. As with the last bubble you had significant innovation survive the nuclear winter. You will see the same in this bubble. There will be innovation that improves quality of life. Whether that is something like Zynga’s Farmville or Twitter it may still be a bit early to see who survives this shakeout but you are seeing the positive affects of Twitter and social networks in events like the Arab Spring.
And while this crop of hyped companies do have impressive revenues and some profits, one thing is for certain, as second and third tier companies make their way through IPO markets and disappoint with collapsing numbers, you will see the secondary market implode, valuations will reset and lots of unsophisticated investors will lose money. And the SEC will have failed us again.”
Keval Mehta, Jaargon Ltd:
I don’t think that America is looking at a new ‘tech bubble.’ Tech is becoming part of our daily lives and affecting every single industry. Tech is now more than just ‘web sites’ as it was in the last tech bubble. Anyone with an idea, either good or bad, got funding. Investors, entrepeneurs, and the general public are now more aware of what’s a good idea and how it can affect them in their day to day lives.
This rationale alone will prevent another tech bubble. Zygna in gaming and Groupon in commerce are single-handedly disrupting their individual industries with their products, and their valuation and sending a ripple affect in the tech industry. Their affect and valuation are allowing investors who are sitting on a lot of cash that they were unwilling to spend in the recession to now start seeking investments. It may be starting another gold rush. In our company we feel there is a huge void in healthcare technology. It is one of the most untapped markets when it comes to consumer tech and healthcare. We hope to fill in that gap with products and services that allow users to use tech to manage their healthcare.”
James Avery, Adzerk:
The companies going public today have significant revenue and growth – something that didn’t exist in the last bubble. Zynga is bringing in around $1 billion a year in revenue. Groupon brought in $645 million in the first quarter of 2011 (although they still lost money). Even Pandora, which went public recently, is close to hitting $100 million a year in revenue.
We will know we have hit a bubble when the companies getting huge valuations aren’t generating meaningful revenue. When you look back at the big busts in 2000, WebVan went public at a $6 billion valuation and they had under $4 million in revenue all time before their IPO. Pets.com revenue only hit $5 million in the quarter before they went public. People started claiming it was a bubble when Google went public at such a high valuation – but I think with a time machine any one of us would go back and buy their stock at the IPO price.”
Nick Jordan, Smashing Boxes:
In short, I believe we have a flawed system. on the one hand, you have companies like Amazon and Google, where the majority of their current market value was created after their IPOs. That means that the founders and investors who took all of the risk made less off the entire deal than your everyday stock investor or mutual fund.
On the other hand, with these hyper inflated valuations, you have a lot of VCs who need to make a certain return on their investment, so they pump up prospectuses and pass off the risk to these same mutual funds and average Joe investors. Neither is ideal.”
(Note: The American Tobacco complex is owned by Capitol Broadcasting, the parent company of WRAL Tech Wire.)
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