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DoesWhat

Worried about a tech bubble?

Yesterday Michael Arrington wrote a great article about the current tech bubble/blubble, below is how he summarised the difference between this bubble and the dot-com bubble of the early 90s.

“2000 Bubble: Raise at least $100 million in venture capital. Spend! Hire everyone (particularly sales people)! Get revenue by any means necessary! Go Public! Sell Your Stock! Run!

2011 Blubble: Drag blubbering angel investors into Series A rounds valuing your company at $6 million instead of $4 million. Hire engineers, lots of them, as many as you can. Don’t hire non-engineers or other overhead people unless you absolutely have to (thus the dearth of VP Biz Devs around). Your APIs are your sales team! Balance fast growth with low burn (through cost controls or profitability). If you happen to have started Facebook, Groupon or Zynga, capitalize on your massive profitability by doing big late stage rounds that value you at something like 30x forward profits (which isn’t that crazy). If you’ve founded Twitter and have no revenue, capitalize on the massive worldwide cultural impact you’ve created instead.”

Unless you’re investing all your life savings in Series A investments, there doesn’t appear to be much to worry about.

Don Dodge, a Developer Advocate at Google who has worked in the software industry for 30 years followed it up with another interesting article on the subject.

“One major difference between the dot com bubble of 2000 and the current situation is who will be hurt when it bursts. Back in 2000 crazy companies with minimal revenue and zero profit were going IPO on the public stock markets. Inexperienced retail investors were spending their life savings buying up these stocks. They got slaughtered. Today these companies are private. Very experienced professional investors are buying positions. When the bubble bursts these guys will get hurt, but don’t cry for them. Their net worth might drop from $100M to $90M, or from $1 Billion to $900 million. Wah, wah, wah. Nobody cares. Not even the investors losing the money. They are professionals and know it is part of the process.

So, there you have it. Don’t worry about a tech bubble. Take advantage of it. Start a company and build it as fast as you can. In the end investors will make millions or maybe lose some. But you will have the experience of a lifetime. Go for it!”

This entry was posted on Monday, April 25th, 2011 at 8:23 pm GMT. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.



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