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The editors at Biz Brain decided to research the topic of: Demystifying the Tech Startup BubbleWith IPO flops and Billion dollar tech acquisitions, many experts are debating the existence of a tech startup bubble. Is it real? What is a tech startup bubble?- An investing phenomenon -- An obvious, but unsustainable, market rise from increased speculation in tech stocks - Typically characterized by: - investors predicting big ROI opportunities - rapid share price growth from hype - heightened tech company valuations and acquisitions - Unproven tech companies going public, capitalizing on over-valued demand - Demand not met, and bubble pops Tech Bubble Example: DotCom *POP*- *important disclaimer Total NASDAQ market value - 1990-2000 marked 140% annual growth rates - Zenith in 2000: IT companies represented 1/4th of all equity value in the world - 2 years later: Technology value deflated 70% - The number of [tech?] IPOs dwindled from 457 to 76 (1999-2001) - DotCom bust was a result of "too much, too fast." - Callout case study-esque: - Delusional investment: Pets.com [sock puppet mascot image] - Amazon.com-backed - Raised $82.5 million in an IPO in February 2000 - Opening stock price: $11/share - Delivering pet food and accessories online - Due to high shipping costs and low demand, they lost money on most orders - Collapsed nine months later - Worth $0.19/share DotCom Bubble 2.0? Why some people claim there is a tech startup bubble today- A startup "success" - making more than enough money to pay back investors - 3 out of 4 of venture-backed startups don't return investors' capital - 95% of startups don't meet their projected return on investment (ROI) revenue growth - "Successful" Tech startups are over valued - The average "successful" startup: - Raises $25.3 million - Sells for $196.8 million - $286 million in venture capital funding - $1 billion bought by Facebook Tumblr- $125.25 million in venture capital funding - $1.1 billion bought by Yahoo Zynga- IPO for $1 billion for initial public offering (IPO) - $7 billion company valuation - Trading Debut at $10/share - Today 55% decrease in valuation - $16 billion for initial public offerings (IPO), - 3rd largest IPO in history - $104.2 billion company valuation - trading debut at $38/share - 3 weeks later Facebook stock was worth $28/share - 1 year later Facebook had lost 31% of its initial value The Tech bubble is all bull- 1. The volatile industry has settled - 2. Investing in substantial models - building upon existing technology are safer investments than ideas just coming off the ground - During a recession there's a stronger case that money's been too tight, instead of too loose in the market. - Yet Tech startup total investments through the recession (07-12) Why people say there is no bubble- There is less investment money in the market - People are investing money more responsibly, giving smaller amounts to more companies. - Increases chances of making a profit - The cost of launching a new startup has dropped from the millions to $50,000, making them easier to fund. - People are investing based on substantial technology - Products and services that build upon existing technology are safer investments than ideas just coming off the ground Most startups don't succeed- "Success" would be defined as making more than enough money to pay back investors - More than 95% of startups don't see the projected return on investment - They don't meet their goals to pay back investors or reach a specific revenue growth - Even successful companies can flop - Myspace was boasting over 75 million users in December 2008 - By May 2011, the number had dropped to 34.8 million - As Facebook gained popularity, Myspace lost it - After buying Myspace in 2005 for $580 million, NewsCorp sold it in 2011 for $35 million - $545 million loss - Facebook may be headed in the same direction - "Look out Facebook! Hours spent participating per member dropping seriously. First really bad sign as seen by crappy Myspace years ago," NewsCorp's Rupert Murdoch tweeted May 16, 2012 Conclusion: Does it look like we're in a tech bubble?Sources- http://www.crunchbase.com - http://techcrunch.com/2012/01/03/crunchbaseexits/ - http://www.cnbc.com/id/100686505 - http://www.sfbg.com/2013/04/02/tech-bubble-20 - http://slashdot.org/topic/bi/does-yahoos-summly-buy-signal-a-tech-bubble/ - http://www.huffingtonpost.com/2013/05/20/yahoo-tumblr-valuation_n_3307198.html - http://www.huffingtonpost.com/john-friedman/real-estate-bubble_b_2745173.html - http://www.ft.com/intl/cms/s/0/d215a3b6-ec43-11e1-a91c-00144feab49a.html - http://www.investopedia.com - http://readwrite.com/2011/07/14/3-myths-of-the-startup-bubble - http://www.honeytreeholdings.com/is-the-startup-bubble-bursting/ - http://venturebeat.com/2012/04/17/are-we-in-a-startup-bubble/ - http://venturebeat.com/2012/04/17/are-we-in-a-startup-bubble/#v2IulFyac0RiWo7T.99 - http://www.theatlanticwire.com/technology/2013/01/2012-year-tech-bubble-numbers/60517/ - http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-rupert-murdoch-facebook-myspace-20130517,0,7386543.story - http://www.businessinsider.com/why-there-is-no-tech-bubble-2012-5 - http://usatoday30.usatoday.com/money/perfi/stocks/story/2012-05-17/facebook-trading/55056312/1 - http://online.wsj.com/article/SB10000872396390443720204578004980476429190.html - http://housingstory.net/2010/08/19/the-five-stages-of-america's-housing-bubble/ - http://www.brilliantforge.com/2012/03/08/tip-for-startup-founders-it-isnt-1999/#.UZ-FtKUkU6o - http://www.cnet.com/1990-11136_1-6278387-1.html ![]() |