Is the startup bubble bursting?
Miami, FL, United States (4E) – By Michael Barnes
Once your gym trainer tells you he’s got a hot startup and a new dog-sitting venture receives 10 million in funding, maybe it’s time to think that we are in the midst of a frothy tech bubble reminiscent of the 90′s Dot Com crash.
On Tuesday, The New York Times reported that nearly 25-40 primarily Silicon Valley-based startups are valued at $1 billion or more, including big names like Pinterest and Spotify. Executives at the companies featured in the article report that this business cycle is different in that there is a wave of innovation and new technology such as cloud computing, social media and the advent of smartphones and tablets that justify the amped valuations.
Some in South Florida startup investing circles feel otherwise. “When they start making reality shows about startups and your trainer at the gym has a new start up, we may be apexing,” said Bill Bathurst of Pristine Properties International.
Gym trainers and Hollywood have nothing on dogs though. On Monday, Techcrunch.com reported that Rover, a dog sitting and pet care startup, just received $7 million in Series B funding for total funding over $10 million.
Industry insiders point to that kind of easy money as a sign of the coming apocalypse and indicate no lessons have been learned from the 90′s bubble.
“We’ve learned nothing,” stated Tim Thompson, Business Development Manager of Paragon Foundation of Palm Beach County. “The same forces that drove the over-evaluations of the Dot Com era still run the show. Knowing that the valuations of these companies and technologies are a façade won’t stop the Wall Street types or the Dot Com veterans, who’ve seen it before and should know better, from trying to profit again.”
Thompson feels that Wall Street firms like JPMorgan Chase & Co. and Morgan Stanley and dubious investors like Jeffrey Picower, who was a big beneficiary of the Bernie Madoff Ponzi scheme, will play both sides of the game, issuing glowing analysis and valuations while hedging their bets with shorts on the backside.
Other investors put the blame on greedy entrepreneurs feeding at the trough.
“Two years ago, offering someone $20k (plus legal, mentoring, finance and other advice) for 10% stake, giving them a $200K valuation for a company that was nothing more than a PowerPoint put together on a weekend was a slam dunk,” said angel Frank Nemanic of Nemanic.com. “Entrepreneurs jumped on it and they were smart to do so. Now some of them consider it an insult. To me, that is the perfect indicator of a brewing bubble.”
Others indicate that the advent of emerging markets in the global economy make this boom different from the Dot Com bubble.
“Having been through a couple of tech bubbles running, advising and/or investing in both large public and private companies for 25 years, everything to me comes down to price-earnings ratios vs. reasonable growth of profits by subsectors,” said Rob Strandberg, President & CEO of Enterprise Development Corporation of South Florida.
“When this ratio is out of whack within a large number of sectors, it’s time to worry. However, I see big positive recoveries in the U.S., Asia and South America offset by worsening Southern European fears.
In a domestic market heavily influenced by the global economy, the fate of companies, especially public ones, is tied to the performance of markets in Europe, South America and Asia, not just North America.
Resurgent recoveries in other parts of the world, despite European woes, mean that the American economy and the current tech boom might just surge on and avoid a spectacular crash like the Dot Com bust in the 90′s.