Earlier this week, prominent venture capitalist Bill Gurley sent a warning shot across the startup industry, noting that burn rates at venture-backed companies are at an all-time high and that the industry has taken on too much risk as dollars continue to flow.
Interestingly, since Gurley’s Q&A ran in The Wall Street Journal, I’ve heard mutterings from folks who think we are nearing the apex of the current tech cycle, with one prominent CEO telling me this week that “we’re much closer to the top, than the bottom.”
That may be the the case.
But, as this chart shows, there’s still a heck of a long way to go in order to reach those epic heights of the late 1990s and early 2000s. Even so, VC funding hit $12.97 billion in the second quarter, the biggest haul since the first quarter of 2001 and an 81 percent increase over the same period last year.
Do you think we’re headed higher, or is a correction right around the corner?
I lived through (and covered) the last big tech bubble — a frenzied time of over-the-top IPO parties, outrageous PR stunts and pointless business models. (Anyone remember the Loudeye IPO party at the old iSpy nightclub, featuring a Goldfinger theme?)
This current boom cycle doesn’t feel like the previous one — where my friends and family in the Midwest were calling me for stock tips on companies that had little revenue and no chance of profits. (A bad idea, mind you).
Today’s crop of companies — whether Zulily, Tableau or Zillow — all have significant revenue and many have flirted with (or shown) profits in the past. The problem is that everyone right now is in hyper-growth phase, emulating Amazon.com and trying to outmaneuver other heavily-funded rivals. That one-upmanship is leading to some massive funding rounds, and crazy valuations.
Today’s tech boom also is being driven by massive amounts of cash on the books of big tech giants who are paying astronomical prices for private companies (Amazon buying Twitch for $970 million in cash; Microsoft buying Minecraft for $2.5 billion, Facebook buying WhatsApp for $16 billion).
Investors in public tech stocks may get hurt when the tech cycle turns, but nowhere near the levels of the last boom. And that’s a very good thing.
Editor’s note: Bubble gum photo via Shutterstock.