Columbia University granted anthropologist Sekai Farai the opportunity to study startup community technology at a time when yuppies from New York, London and San Francisco were so much into fortune-making through new generation internet businesses. Farai sees the start of a new hit as people who began startups are rejecting jobs today because of the opportunity of money in an idea that could be the next big one.
Each week, a new internet firm generation magnetizes enormous valuation. Zynga, the company behind the Farmville game where millions grow virtual vegetables is valued at $9 billion. Even profitless Twitter is worth $10 billion.
Online discounts vendor Groupon, declined Google’s offer of $6 billion as it mulls over flotation to increase its value to $15 billion. Observers believe this is just the beginning awaiting Facebook’s (the flagship of the new dotcom whirl) going public by next year.
Facebook is valued at $60 billion and staff plans to sell $1 billion of private shares, which is $10 billion above January’s valuation and 10 times what Digital Sky Technologies paid to employees who sold shares in 2009.
Facebook is valued near Ford’s $55 billion and Visa’s $63 billion, still below a third of Google’s, the main competitor of Facebook in terms of internet supremacy.
Broadsight co-founder Alan Patrick said this is the beginning of another bubble – which is too much money chasing assets, greater asset production and the need to seek a greater fool to buy them, he added.
This point has money chasing small firms like Facebook, Groupon and others that are potentially good investments which happened to other bubbles such as the start of the US property boom. The best houses in the best sites went first. Then people settled with lesser quality flats in Florida.
Patrick said the bubble is being blown when a ‘new thing’ cannot be valued in the old way and dumb-money companies pay over the odds for new acquisitions. Smart ones spot the star of a bubble while supporters make brighter claims. Startup with founders believed to have ‘pedigree’ like the newer companies’ ex-employees, get funded by incredible valuations.
Additionally, said Patrick, there is an outbreak of new investment funds for startups; companies get funded even without a product but merely on their PowerPoint presentations; MBAs depart banks to start up firms and “big flotation” happens. Another tattletale is when banks market a new innovation, investing pension money and even cab drivers advise what stock to buy. Lastly, a new company buys an old-world company for dull money.
Right now, the new thing is social media as Twitter and Facebook are believed to be human communication’s uprising. They are not profiting but are valued very high. Huffington Post founder, Arianna Huffington and TechCrunch’s creator, Michael Arrington both sold their publications to AOL.
Ringing the alarm for a while was investor Fred Wilson, a 1999/2000 dotcom bubble veteran. He said he’s concerned that a 2 or 3-person startup could be valued at $50 million to $100 million which he believes is not reasonable. He even named Quora, a Q&A site started by Adam D’Angelo and Charlie Cheever, Facebook alumni. Fund raised last year was $11 million at a price that valued Quora at $86 million but now fends off a $330 million offer.
First dotcom boom fortune-maker, Mark Cuban, sees the frenzy similar to a pyramid scheme while Silicon Valley’s David Cohen said there is a bubble in the many companies financing startups.
The last real dotcom hit was Netscape’s flotation in 1995 and today, Facebook may be it, said Patrick but at this point, private investors can’t penetrate the new thing. JPMorgan though is raising the fund. Goldman Sachs already attempted to get into Facebook.
Some however view it differently like Quid’s intelligence director Sumon Sadhu who sees money but not a bubble. In 2010’s 4th quarter, he estimates that internet firms drew $2.5 billion new investments from previous quarter’s $949 million. But companies that get cash increased from 3rd quarter’s 226 to 252 the next.
Sadhu said social media made a great new information source regarding web users like Facebook that has a great deal of a person’s identity and that is worth a fortune. He said after the information explosion, the trust from whence the information is and that is what’s being monetized.
From Farai’s viewpoint, it’s uncertain. She said elements out there are pyramid-esque, Ponzi-esque, maybe even Kafka-esque, a sense that it isn’t real money which can be bad in the end. True or not, only time will tell.