Is the tech industry headed for bubble number two? That was the burning question for those who gathered at the Automattic Lounge on Pier 38 in San Francisco last Thursday. The answer appears to be no — or at least there are no signs of it yet –according to a panel of venture capitalists and entrepreneurs brought together by the law firm Dorsey & Whitney who sponsored the event “Are We All Blowing Another Bubble?” Those of us in the audience who were in tech PR and marketing during the last dot-com boom, breathed an audible sigh of relief.
The panel was moderated by Owen Thomas, executive editor of VentureBeat. The panelists were Paul Martino, co-founder and executive chairman at Aggregate Knowledge; Christine Herron, principal at First Round Capital; Corey Reese, CEO of Trumpet Technologies; and Tim Chang, principal, Norwest Venture Partners. All of them, except for Reese who was in high school at the time, experienced the dot-com bubble first hand.
Martino doesn’t see any signs of a bubble yet, and noted that there have been only a handful of high profile market valuations recently, yet they have received a disproportionate amount of attention from the press that in turn contributes to a perceptual disconnect with reality. ”Silicon Valley is like high school — until you die,” said Chang, noting that the “hot people” get chased by everybody, and all the attention is on the prom queen and the team captain.
The most popular kids right now just happen to be companies in the social media space such as Facebook, FourSquare, Groupon and Zynga. Chang noted that it’s like the California Gold Rush where one guy makes a fortune, and the rush is on. In reality, those lucky companies represent about one percent of the deals being made out there right now.
So how do entrepreneurs create a bidding war these days? The truth is those days are probably behind us with the last Dot-com implosion in 2001. It really comes down to having a strong “process,” according to Herron and Reese.
Martino observed that he doesn’t think the market has come to terms with the fact that there are capital efficient and non-capital efficient plays. Many “core tech” companies (focusing on chips and enterprise) find it difficult to raise money from venture capitalists because they must look for capital in the neighborhood of $100 million as opposed to those starting social media companies on $10, he said. Our biggest risk is follow-on financing, said Herron. Her biggest question is what do you need to prove your hypothesis?
So it’s going to be business as usual folks. At least for now.
You can read moderator Owen Thomas’ wrap up of the event here: The good news and bad news about bubbles.