From Bay Area to Bangalore, if there is one word which is stirring the fancy of the masses in general and analysts in particular, “Startup Bubble” seems to be that word! It doesn’t matter if you are in the crowd or away from the crowd, bubble is bound to get into your radar, be it at a conference, Twitter feed, newspaper columns or random article forwards.
At one end of the spectrum, there are the believers, led by big bulge VCs riding their unicorns, chanting data and waving neatly presented big graphs showing mobile phones’ sales growth, internet data usage, volumes of WhatsApp messages, number of photos clicked and other mind-numbing metrics and speaking loudly as to why it is not 2001. However as it generally happens, the other side, consisting mainly of newspaper columnists, accountants, finance professors, out of work CEOs and some missed-the-boat-VCs/entrepreneurs, is not amused by all this mumbo jumbo and looking wryly at daily funding news and murmuring loudly to anyone who cares to listen, about these crazy valuations, lack of profitability and unsustainable business models. For them, the 2001 dot com bubble is very much here and that too in a 10 times bigger format. Not to be left behind by the VC crowd, they have their own set of anecdotes, stories and data graphs though from 2001 era.
This war between valuations and sustainable business is not new or started this year or last year but has always happened whenever there is a significant shift in asset prices. In fact the talk of startup bubble stared way back in 2011, when Uber, leader of the present Unicorns raised $12 Mn at a valuation of $60 Mn and Wall Street Journal published an article with title, “In Silicon Valley, Investors Are Jockeying Like It’s 1999”.
Four years later, with Uber valued at $50 Bn, the noises have only grown louder and bigger though Uber has not shown any slowdown in growth or in its ability to raise billions of dollars while growing by a whopping 800 times in less than 5 years.
Interestingly the division is deep and lines are clearly drawn as each group has its own set of believers, followers and relative data to back. The whole argument has slowly turned into a debate of the deaf where each party is consumed by their own arguments without understanding the counter point.
The main reason as to why the general public, commentators and all those business leaders are wrong in prediction of the Startup bubble burst is mainly due to their limited or rather skewed understanding of the way venture capital world operates and how the dynamics of the VC world has evolved in the last 2 – 3 years.