Dien Rice
March 25, 2011, 06:12 PM
Thanks Dien.
1. I think Zynga and Groupon both are solid businesses based on their revenue. They don't have ballooned valuations as far as I can see. Twitter - I have my doubts. Can it create an advertising program that would earn them that much revenue? I have my doubts. But they certainly do have traction.
2. Unlike the first dotcom boom and bust, this time we're not seeing IPOs. Not even facebook has come up with an IPO yet. We're mainly seeing private money. And mergers and aquisitions by bigger companies before a company goes public. (Intuit buying Mint. All the companies salesforce has bought.) So unlike last time, we won't see the masses lose a lot of money within days.
3. Saying that, the number of startups being funded is insane. I know 1 incubator called something like the startup fund - invests in 500 startups a year! Ycombinator - one of the more popular incubator invests in about 80 startups a year. Overall, we're seeing north of a 800-1000 companies who are receiving seed money to start off - every year - and this only from North America. Obviously a majority of them will fail. So in that sense, yes there is a boom/bust situation going on. When investors fund a 1000 new companies, you know that many of them will be full of fluff. But these failures have low monetary risks for the angels and vc's who invest in the startups (most of them receiving only about $20,000). So we won't see the widespread bust as we saw before.
Hi Ankesh,
I agree with you, that various things about this "dot-com boom" are different from the one around 10 years ago...
As you've pointed out, many of the companies are profitable this time around - unlike 10 years ago! (Twitter might be the exception in the companies I listed - but I'm pretty sure that Facebook, Zynga, and Groupon are all generating large profits.)
Also, there are no big IPOs yet (that is, none of these companies are yet listed on the stock market)... so the general public has no chance (so far) to participate in this latest boom. The beneficiaries are pretty much limited to company founders, early employees (who may get stock), venture capitalists, and angel investors.
If you are generating a lot of profits, you probably have less "need" to "cash out" through an IPO...
However, some people criticize the lack of IPOs, since, as I said, the general public can't share in the profits this time. At least not yet.
A third difference is that many of these are "Web 2.0" companies, and are specifically about creating or exploiting online social networks...
It's good to know about these things - so we can also figure out how to profit, too - as well as see where the "trends" are headed!
Thank you, Ankesh, for your insights!
By the way, just out of curiosity, is there a similar "Start Up" frenzy in India, to your knowledge, with venture capital, angel investors, etc.?
Best wishes,
Dien
1. I think Zynga and Groupon both are solid businesses based on their revenue. They don't have ballooned valuations as far as I can see. Twitter - I have my doubts. Can it create an advertising program that would earn them that much revenue? I have my doubts. But they certainly do have traction.
2. Unlike the first dotcom boom and bust, this time we're not seeing IPOs. Not even facebook has come up with an IPO yet. We're mainly seeing private money. And mergers and aquisitions by bigger companies before a company goes public. (Intuit buying Mint. All the companies salesforce has bought.) So unlike last time, we won't see the masses lose a lot of money within days.
3. Saying that, the number of startups being funded is insane. I know 1 incubator called something like the startup fund - invests in 500 startups a year! Ycombinator - one of the more popular incubator invests in about 80 startups a year. Overall, we're seeing north of a 800-1000 companies who are receiving seed money to start off - every year - and this only from North America. Obviously a majority of them will fail. So in that sense, yes there is a boom/bust situation going on. When investors fund a 1000 new companies, you know that many of them will be full of fluff. But these failures have low monetary risks for the angels and vc's who invest in the startups (most of them receiving only about $20,000). So we won't see the widespread bust as we saw before.
Hi Ankesh,
I agree with you, that various things about this "dot-com boom" are different from the one around 10 years ago...
As you've pointed out, many of the companies are profitable this time around - unlike 10 years ago! (Twitter might be the exception in the companies I listed - but I'm pretty sure that Facebook, Zynga, and Groupon are all generating large profits.)
Also, there are no big IPOs yet (that is, none of these companies are yet listed on the stock market)... so the general public has no chance (so far) to participate in this latest boom. The beneficiaries are pretty much limited to company founders, early employees (who may get stock), venture capitalists, and angel investors.
If you are generating a lot of profits, you probably have less "need" to "cash out" through an IPO...
However, some people criticize the lack of IPOs, since, as I said, the general public can't share in the profits this time. At least not yet.
A third difference is that many of these are "Web 2.0" companies, and are specifically about creating or exploiting online social networks...
It's good to know about these things - so we can also figure out how to profit, too - as well as see where the "trends" are headed!
Thank you, Ankesh, for your insights!
By the way, just out of curiosity, is there a similar "Start Up" frenzy in India, to your knowledge, with venture capital, angel investors, etc.?
Best wishes,
Dien
