Everyone from CB Insights to Vanity Fair is talking about the "Tech Bubble" these days. It's even become a regular topic of conversation for the main stream media lately, and people just can't get enough. From discussing the newest "Tech-Unicorn" (or "Decacorn") to the latest security breach, people, in general, seem to be genuinely interested in what is going on in the world of technology. At this point, the "Valley" and the industry it feeds has basically achieved celebrity status, and like some of it's famous "Unicorn" subjects the Technology kingdom has many wondering- is this the stuff of fairy tales? Or the real deal?
First of All- Why Do We Even Care?
Simply put, for better or worse, the multi-billion dollar tech industry has changed the world we live in. It's affected everything from the way we eat, treat illnesses, communicate, work, etc... In short, technology has redefined what it means to be human. Ironic? Maybe, but it's true. Technology touches everyone and, therefore, has everyone's attention.
While all of this "bubble talk" is certainly interesting to us all, it also has left people completely divided, and for good reason- we all remember Dot-com bubble crash of 1999-2001, right? But, regardless of where your views align with this debate, it's undeniable that there are solid arguments on each side of this issue.
All In Favor!
There are many that believe, yes, we are in a tech-bubble. They also belive that we should be very worried about the potential ramifications when it pops! The primary argument for the tech-bubble, and it's potential to pop, surrounds the fact that we are living in a time when privately held companies are achieving monstrous valuations. Venture capital, private-equity firms, and even governments from China and Russia seem to be lining up to throw billions of dollars at technology start-ups with very little revenue. The problem is that there is no real way of knowing that these companies are in fact worth even a fraction of what they claim. They just aren't regulated like the public markets, and with no formal review process for private companies they can basically insist their valuation is over $1 billion dollars, and BOOM, it is! But, then what? Well, these unicorns have three options, go public, get acquired, or die. Now, we're sure its not quite that straight forward, but still, it gives cause for pause, right?
All in all the real question is relatively straight forward. If we do have a bubble on our hands, and it does pop, what would this mean the economy? Fears are focused primarily on a volatile market and interest rate fears. Valid? Maybe, but predicting if the bubble might pop or not at this point is pretty much pointless, because if there is a bubble, it's not a matter of if, it's when.
Clearly there are individuals and various entities who have vested reasons to disagree with even the basic notion that we could be experiencing a "bubble effect". Because, as mentioned in the Bloomberg View, "bubbles, by definition, pop, and if tech crashed it would hurt a lot of investors." In fact, one of Silicon Valley's largest, most successful, and outspoken of venture capital firms, Andreeseen Horowitz, went to great lengths earlier this year to discredit the idea of a bubble.
Their primary argument exploits the stark differences between what is currently going on in tech and what happened before during and after the dot-com bubble popped. For example:
- Funding for tech startups isn't close to has high as 1999 and 2000
- Long-term potential for today's startups is much stronger today than it was during the dot-com era
- Fewer tech companies are going public today when compared to the 90's
- The tech sector hasn't overtaken the Standard & Poor's 500 stock index like it did in the late 90's
- In general, tech stocks aren't valued higher than any other stock valuations
All good points, so maybe this bubble is fiction after all? Food for thought anyway.
Anyway, back to the facts. With a focus on big deals and late stage deals, there has been a reported $98.4 billion invested into VC-backed companies in just the first three-quarters of 2015. In fact, by Q3 of 2015 CB Insights reported that "VC-backed investments year to date were 11 percent higher than all VC-backed investments in 2014, and 99% higher than all VC-backed investment in 2013." Additionally, the third quarter alone gave birth to 23 baby unicorns globally! However, despite there have been fewer IPOs than normal, so what now?
We suppose we will have to wait and see, but in the mean time, it's an interesting and exciting time to be a part of the tech industry. Though competition is steep, opportunities are plenty for those who are dedicated, determined, and organized.