Is there a bubble in the tech economy, and are you concerned about it bursting? At this year’s GeekWire Summit, we made a point of asking many of our speakers that question, with the goal of getting a broad range of perspectives from tech leaders on a topic on the minds of people across the industry.
The general consensus: Yes, there are plenty of signs of a bubble, and there’s reason for some concern, but there are differences this time around. Each speaker had a different take on the issue, and a different level of concern. Here’s a rundown of their comments.
Greg Gottesman, Pioneer Square Labs
“I think you’d be crazy not to be worried about the frothiness in the market. We have enough capital to last four or five years, through a cycle, for sure. I just think you have to be smart about your burn rate, and just realize that every market goes up and down. I do think that, in certain sectors, there’s definitely some frothiness. I think you’d be insane not to believe that, and to build your companies with that in mind.
“But at the same time, I feel like we’re still at the precipice of so much change. This is the most incredible job ever. All we do is we sit around, we build new companies, talk about new companies. It really is a privilege. The fun thing about it is we have no shortage of ideas from our venture partners, coming from ourselves, and there are so many areas to attack. Even though we may have some ups and downs, I don’t think a long-term malaise is going to set in technology. … I just think so much will continue to change in technology, and I think Seattle is in a really incredible position to benefit from that.”
Bridget Frey, Redfin CTO
“There are some elements that feel similar to back in 1999, which is when I started my career. The partying and some of those elements. But I do think we’re going to continue seeing tech transforming these end-to-end businesses. Whether it’s Uber or Redfin, taking older industries and transforming them through technology. I think that’s going to continue.”
Dave McClure, founding partner, 500 Startups
“Probably a little bit. Selectively, a lot of later-stage companies are getting a shit-ton of cash. I don’t think it’s the same bubble as 15 years ago. There’s terms for venture capitalist liquidation preference that somewhat is what’s driving the prices that we see as valuations. The valuations for private companies are not quite the same as valuations for public companies where that stock is tradable immediately. If a company is valued at, you know, $20 billion, they probably have to be worth more than the capital that they’ve raised, which might be $2 billion or $3 billion, but I don’t think it’s a crazy thing if they’re optimistically valued higher, at what they could be worth. But probably a few of those companies are going to blow up and we’ll see some resetting of expectations in the market.”
Robert Hohman, CEO of Glassdoor
“The good news is, I think in the last couple of months, it’s started to cool off a tiny bit. I’m feeling it. If you’re hiring in the Bay Area right now, you can see it in salaries. It’s crazy. Engineering salaries have increased 30 or 40 percent over the last two years. People are walking out of college, software engineers, asking for and getting $135,000 to $140,000. As a starting software engineer, which was unthinkable 2-and-a-half, 3 years ago. Someone’s going to pay it. You see it there. Do I think it’s a legitimate bubble? I think there’s too much late-stage money pouring in, for sure. I think it’s pulling back a little bit now, which is healthy. It will take a little while for that capital to work itself out of the system. I think there are a bunch of companies that have cost structures that they can’t support. When the money dries up, there will be a lot of companies that just can’t get off the ground.”
Brady Forrest, vice president, Highway1 hardware incubator
“Perhaps Seattle angels are smarter, because I think a lot of angels in the Bay Area will end up losing their money. Some of my companies are able to get follow-on funding, but not all of them. And the salary pressure that was just discussed by Bob (Glassdoor CEO Robert Hohman) is true. And I think we’re going to start seeing people looking elsewhere for employees. Whether or not we’re in a true bubble, I don’t know, but at least these companies this time around have revenue.”
Spencer Rascoff, Zillow Group CEO
“Yes, probably, and yes, I’m worried about it. I think the tech bubble is typified by the private company/public company valuation disconnect, where you have the Spotify that’s private, Pandora that’s public; or AirBnB that’s private, Trip Advisor that’s public. Where the private companies are trading at these incredibly high multiples in the private markets, and the public companies are not. The reason is, there’s just so much venture capital chasing those unicorns, driving up those valuations, because of the fear of missing out, and because more private capital has moved into that late-stage venture asset class. So that bid up valuations.
“Where there is not a bubble is in the real-world, in-the-trenches, angel Series A, Series B, where actually it’s pretty darn hard to get a Series A done, if you’re just a normal company scraping together a couple hundred thousand monthly active users, and you haven’t hit escape velocity yet. It’s actually pretty hard to get funded in that space.
Phil Spencer, Head of Xbox
“I’ve grown up at Microsoft in the creation space, and watching people create amazing things, and the value they’re able to drive out of that. As the tech industry continues to innovate — whether it’s self-driving cars, whether it’s things like Minecraft — I think there will always be ebbs and flows in valuation against actual value of what people own, but I’m always inspired by the creations that people bring to market, and the new. So any momentary bubble that I see gets blown away by somebody creating something like a Facebook or a Twitter or a Minecraft and absorbing the value that’s there. So I watch the oscillations but I have a ton of confidence in the future in front of us as the tech community continues to innovate and invest in what’s coming next.”
Elena Donio, president of Concur
“Concur’s been really lucky in that we had those really hard times in the beginning, but we’ve also sustained growth through some really nasty times, 2007-08. We were growing, there was no retraction in our growth rates. I would say, when you’re thinking about the kinds of solutions that will survive those times, it’s the kinds of things that people will need when times are good and when times are bad. Automation of a core business process. It’s a huge pain in the neck; it’s not a luxury item. So think about that as you’re thinking about your next couple ideas. The next few years, those things that save time and create efficiency, save money, might be the ones that win.”
Steve Singh, CEO of Concur
“Look at the public markets. There’s clearly a correction going on in the public markets. I think that the private markets will get corrected, as well. So a direct answer is yes, we’re in a bubble. I don’t think it’s a bad thing. Across history, what you’ll see is you have moments where it’s way up and where it’s down. What you have to measure is the trend line. I think there are some amazing companies being built that are truly capable of enduring for long, long periods of time. Yeah, there’s a whole bunch of these unicorns out there, but I think a bunch of them will survive. Will there be down rounds? Yes, there’s going to be down rounds in these things. It’s the capacity to build value that we’ve got to go measure.”
Nick Hanauer, entrepreneur and venture capitalist
“Complex systems, which is what an economy is, are non-linear, non-equilibrium systems. Anybody who tells you that there is an equilibrium either is confused or is lying. So bubbles are an intrinsic part of these dynamic systems, and oscillations are an intrinsic part of these systems. The issue is not, “Will you have a bubble or not?” the question is, how big will you let the bubble get, and how bad will it be when it bursts? And so, of course, we’re going to be in these oscillations, so of course we’re going to be in these oscillations. We just have to manage through it.”
Tom Gonser, DocuSign founder
“For us, the valuation we have, based on the revenue we have, is actually pretty rational. I think there are places in the market where the valuations are very different than ours compared to revenue. (Our valuation) is much more rational than a lot of these folks. I do think there is a bubble, but I think there’s typically bubbles happening. I think the big question is, will the bubble pop? I think some of them might. There are some pretty crazy valuations out there. And then there are some that are not.”