41,000,006 reasons why I think we're in a bubble

http://jacquesmattheij.com/41000006+reasons+why+I+think+we+are+in+a+bubble

by revorad • 15 years ago

369 254 15 years ago

scrrr• 15 years ago

Well, I am not in a bubble. If anything my software is vastly undervalued. I wouldn't know what to do with 40M. I could use 100k though..

nadam3• 15 years ago

Yes, I see that some mobile-social-consumer stuff with very good connections to investors may be overvalued (but who knows?) (and they get huge tech-media attention), they may be in a bubble, but for most startups it is still 'business as usual' I think.

pclark8• 15 years ago

The very fact you wouldn't know what to do with $40M is why you couldn't raise $40M, and they could.

Tyrannosaurs5• 15 years ago

Yes but knowing what you'd do with it and that being a good thing to do with it are different things.

I don't see what they need $40m for that's going to deliver real value.

fedd• 15 years ago

same thing here except i would know what to do with 40M: use the software we're writing to launch the consumer-facing location-social google killer armed with AI! (buy servers and bandwidth etc)

isn't it strange? well, as a software devs we seem to have longer and harder path to breakeven.

but consumer startups seem need even more money to serve millions of customers, and the success chances seem a little higher than that of a lottery, as you should predict and check if the inconstant masses would like the app or not.

why we're not in a bubble then?

dclaysmith3• 15 years ago

"A $41M investment at this stage in the life cycle of a business is normally associated with either something that is technologically complex and thus capital intensive or that requires new processes to be designed from scratch."

This is what struck me when I heard about the deal. Color is cobbling together existing technologies and not creating anything new. This deal pushed me into the "There is a Bubble" group. They had better have an ace up their sleeve.

nikcub4• 15 years ago

don't focus on the features of the product - focus on the team. it might end up being something completely different (there is a word for that)

from the perspective of 'can these guys spin a $40M investment into something that is worth more?', the answer is probably yes (probably enough to worth investing in)

it isn't a bubble because this is still VC money, not crazy mom and pop shooting at the NASDAQ money. during the bubble this company would have already IPO'd and been worth $5B, and you parents would have called you up to ask about it.

dclaysmith3• 15 years ago

From everything I read, Color has a fantastic team and the Techcrunch article is actually pretty positive on the idea. I'm sure that the company will succeed.

But saying a company will likely succeed and deserves an investment does not mean VCs shouldn't be making rational valuations based on real business metrics. And as the OP remarked, this is probably funding at a $80m+ valuation for a company with no product (when funded), no revenue, and plenty of competition.

mkr-hn2• 15 years ago

Cuil had Googlers behind it. The people behind it can make a difference if the other fundamentals (market viability especially) are in place.

Is there a $40m+ market for a group photo album app? This app is free, so they'll need a great monetization model even if the market is there.

toddmorey2• 15 years ago

The team behind it makes the work I've seen so far all the more surprising. Have you played with the app? It's horrible. It's really bad. It's not fun to use--it's confusing and frustrating. The UI is a nightmare. It's buggy. I know some of those things can be smoothed out over time, but it doesn't feel like those early apps you see that have tons of promise but a few rough edges. As an investor, I'd be worried.

iqster3• 15 years ago

One of the arguments I've heard that state that things are different this time around goes like this: it is far less capital intensive to do a startup now rather than in the late 90s because of open source software stacks and cloud computing providers. I agree with this statement but it means that the average software startup doesn't need a lot of cash to develop their product. Apart from ads and perhaps domain names (haha), why does anyone need so much cash?

EDIT: I guess it could be patent licensing. I don't buy the technological complexity bit, personally.

Also, if you know that everyone's headed towards a bubble, what is the correct response if you are a rational entrepreneur? Riding the bubble to the top and bailing before the crash does not jive with me.

pclark8• 15 years ago

Developers are not cheap.

tomjen32• 15 years ago

True and false, assuming color has one tech cofounder. What they need at this point is an Android and IOS client that can take pictures and record the current position of the user then you need a backend system that can handle the massive concurrent upload of pictures and do concurrent geo-spacial lookups. This is by far the most difficult part but MongoDB has a filesystem component and there is a plugin for Nginx that allows you to serve files directly from it.

The geospacial indexing can be accomplished by creating a 2-dimentional index of picture buckets where each bucket contains the pictures taken within a small geographical area (say 2000x2000 meters) then all you only have to iterate over the pictures in the buckets that are within the current distance from your location. The clients can easily sort their images before their are uploaded.

It may sound complicated but games do that kind of thing all the time, and often with bigger constraints (skipping a picture or two isn't going to be a big deal).

So yeah devs are not cheap, but a technical co-founder should be able to develop this.

greendestiny2• 15 years ago

Advertising. People are already bemoaning the network effect in the lack of content on color - I think maybe the plan is to buy their way into users.

arkitaip5• 15 years ago

Just because there might be a bubble doesn't mean that all startups will autofail. However, if I ran a startup with ads as my main source of revenue, I would be worried as advertising budgets are the first thing to be axed in a crisis.

For entrepreneurs crashes are the best times to innovate and launch new ventures because while everyone else is angsting about cutbacks and surviving just another day, the entrepreneur can launch lean businesses and products AND usually get great deals on people, equipment, office space, services, etc.

iqster3• 15 years ago

Do you mean crashes are the best time? During bubbles everything gets more expensive.

I agree that a bubble doesn't mean all startups with autofail. I would like to learn from the past and understand what worked.

z92• 15 years ago

We might be in a bubble. But that bubble will continue to inflate as long as people are screaming Bubble! Bubble!! The danger moment appears when all those predictions appear false and everyone start to believe, maybe this time, for some reason, exponential growth will continue forever.

The moment when everyone shut up and start to join the bandwagon is when the bubble bursts. <-- That's from my experience.

iqster3• 15 years ago

Your last sentence is very astute, and resonates with me personally. I thought valuations were insane in the late 90s but ultimately gave in. I think that was less than 6 months before the crash!

Regarding exponential growth. We need to think carefully what kind of efficiency improvements can SUSTAIN exponential growth. The adoption of the Internet to the mainstream was a major event. I guess people might be betting that mobile/tablet is another one. I thought this was already priced in about 2 years ago. I can't think of what has changed in fundamentals that justifies the current situation (except for inflation perhaps).

tyng7• 15 years ago

At least the domain name is worth some dollars.

I actually quite like the concept - makes group photo sharing fun & easy. But worth $41m? Not yet

jarin3• 15 years ago

I wonder how much they paid for the @color Twitter account.

MatthewPhillips6• 15 years ago

Twitter doesn't allow selling twitter accounts.

pclark8• 15 years ago

Hmph. If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color.

Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing?

Companies like Color, AdKeeper and Flipboard have "crazy" valuations based on the founders having ridiculous resumes. They have all created billions of dollars of value for their investors, hell, why wouldn't you invest in that potential again?

Rationalising this metaphorical bubble to domain prices is absurd, since domains have always been traded for eyebrow raising prices. You think that the domain color.com or path.com will be worth $10 in 5 years time? Seriously?

Color almost certainly didn't require $41M to get to the product you see today, did people ever consider the company is - gasp - launching early and has the capital to iterate and scale for the next few years? I can think of lots of startups that raised $10M - $20M at company formation and has then spent the next few years (or more) iterating.

Investors are less interested in where you are today, compared to where you are going

MatthewPhillips6• 15 years ago

41 million for growth for an app before it launches?

blantonl3• 15 years ago

Color has launched on both iOS and Android. In addition, they didn't spend 41 million, they received funding in the amount of 41 million.

kovar5• 15 years ago

- If it is going to take them a few years to get to their eventual, profitable, goal, why invest $41M now? Why not invest $20M now and another $21M when they're on the track that will be truly profitable, once they've demonstrated where they are going?

- Is calling the investment "crazy" really offensive to the entrepreneurs? It is more a compliment to them than anything else. The investment may be crazy, but the entrepreneurs managed to get people to shell out $41M. That takes serious talent.

- Getting $41M for color is insulting to a lot of other entrepreneurs that have dedicated their lives to products like color and received nothing. Give half of that $41M in $250,000 chunks to 80 other startups and Color would still have $20M to play with.

If you know how these large investments work, $41M in Color may seem very sane, but to a large percentage of the population, it does appear crazy, particularly in light of the dot com bubble.

Perhaps you could point us to a good article showing why this is a sound investment?

pclark8• 15 years ago

I cannot point to an article about why this is a sound investment, I guess my entire point was that I do not understand why everyone has to jump all over this as to why it is a bad investment, since you have such a hilariously small data point to base any opinion on.

notahacker3• 15 years ago

Picking up on your third point, if your investment thesis is that mobile social networks are a huge untapped winner-takes-all market, spreading your cash index-fund-style over the most promising 80 mobile social startups (kids in college dorms without the resume maybe...) and saving the rest of your war chest and partner attention for the ones showing signs of traction would also probably be a safer bet.

wat554• 15 years ago

Wait, it's insulting to other entrepreneurs who have created apps similar to color? Since when was capitalism fair? The large funding just might mean color will have the resources necessary for years to completely dominate the mobile photo market.

robryan• 15 years ago

To put it into perspective, say YC are giving out an average of $17000 a startup, time 43 startups is $731000 for the round.

For the same amount as this investment you could probably set up seed funds in 10 cities and cover all of the overheads involved. I know which option I would pick.

tyng7• 15 years ago

"Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing?"

Neither Merril Lynch nor Lehman Brother knew what they were doing.

"Investors are less interested in where you are today, compared to where you are going"

Yes the future is important, but there's the risk-reward trade-off. If a company looks badly risky today, a rational investor will steer away from it.

"If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color."

And for your first point, a well functioning entrepreneurs ecosystem require both dedicated entrepreneurs AND rational investors. This is not to demean the entrepreneur.

pclark8• 15 years ago

So now whenever someone with a successful past history does something moderately contrarian, people are just going to recite the banking collapse?

"Rebecca Black signed onto the same record label as Miley Cyrus, I think the label knows what they are doing" ... "We all though Lehman Bros knew what they were doing, dude"

Anyway, I like people that stray from the field and do contrarian things that other people think are crazy, if nothing else in 10 years it'll be exceedingly satisfying for these kinds of investors to point at all the haters (and if they fail, well, everyone was right blah blah serves them right for taking risks)

arkitaip5• 15 years ago

I don't agree with your argumentation but I upvoted you because there is something very disgusting when people downvote simply because they disagree with an opinion. Why people cannot reserve their downvotes for factually incorrect, FUD-y, abusive or trollish posts is beyond me.

brown9-2• 15 years ago

The idea that criticism is insulting, or that we should implicitly trust investors because they have been successful in the past is a bit ludicrous.

I'd prefer to see evidence of success before assuming it will happen.

JoeAltmaier• 15 years ago

The hero worship of folks associated/intrinsic to a previous success has a shakey foundation. A good number of successes were at the right place, at the right time. The details of who was manning the ship were, ok not irrelevant, but not meaningfully correlated with the magnitude of the previous win. Sure they were competent managers, which is required of any company to succeed. But they were not Responsible for the success.

So its a little like sympathetic magic - if we get guys who were close to that other success, maybe some of the halo is still stuck to them and voila! investment rationalization.

Some of us have seen dozens of sure-fire new companies, staffed with experienced professionals, fall on their faces. Younger, perhaps naieve investors still have some lessons to learn.

Admittedly, the article pointed to 6 indicators of a bubble which are probably not quite right; then defended only 1 of them, and waved their hands about the others. That is what I found a little offensive, but to my logical sensibility and not as an entrepreneur. Entrepreneurs have to weather a lot more than link-bait, and need to grow a much thicker skin.

citricsquid• 15 years ago

What's the difference between proof of it being a bubble and these guys just making a ridiculous investment based on hype?

arkitaip5• 15 years ago

What's worrying is that these guys are Bain Capital, Sequoia Capital, and Silicon Valley Bank - some of the most influential tech investors in the world. They should know better. That or they have some incredible inside info on the Color team and their product.

pclark8• 15 years ago

They obviously have incredible inside information - you think they invested based on the Techcrunch post? Is it silly day on Hacker News or something?

greendestiny2• 15 years ago

I think the only thing I'd generally agree on is that "in general it is agreed upon" are weasel words of the highest order.

mkr-hn2• 15 years ago

If there is a bubble, then it's balancing stuff like this that will keep things in check. I've been noticing it too, and I think that's a sign that things are getting crazier as the months go by.

nadam3• 15 years ago

It is not necessarily a bubble yet. I think investors think the mobile-social-local market will be owned by very few companies. (Only a few can survive because of the network effect). They invest into one company and hope that with a lot of advertisement money they can win. There would be a bubble if they would invest the same money into 10-20 or more similar companies randomly.

edw519• 15 years ago

I don't know about the rest of the world, but we sure are in a bubble here at Hacker News. There seems to be a real disconnect between what people want to build/invest in and what people in the real world actually need and want to pay for. Just as sample of what I've witnessed in the past few years:

  Ask HN: How do you like my file sharing app?
  Ask HN: How do you like my social app for niche <x>?
  Ask HN: How do you like my twitter app?
  Ask HN: How do you like my facebook app?
  Ask HN: How do you like my iphone app?
  Ask HN: How do you like my facebook app that writes twitter apps?
  Ask HN: How do you like my game?
  Ask HN: How do you like my photo sharing app?
  Ask HN: How do you like my video sharing app?
  Ask HN: How do I monetize my free flashcard app?
  Ask HN: How do you like my app that helps other hackers to do <x>?
  Ask HN: How do I get traffic to my freemium app?
  Ask HN: How do I get angels/VCs interested?
  Ask HN: Look what I wrote this weekend!
  Ask HN: Look what I wrote in one night!
  Ask HN: Look what I wrote in 7 seconds!

  Customer 1: How can we sell through Amazon.com?
  Customer 2: How can we reduce inventory by $300 million?
  Customer 3: How can we increase conversion from 2% to 4%?
  Customer 4: How can we use software to reduce energy costs?
  Customer 5: How can we migrate one app into another?
  Customer 6: How can we get our phones to talk to our legacy apps?
  Customer 7: How can we take orders through the internet?
  Customer 8: How can we get our software package to do <x>?
  Customer 9: How can we reduce credit card fraud?
  Customer 10: How can we increase SEO effectiveness?
  Customer 11: How can we connect fulfillment and ecommerce?
  Customer 12: How can we increase revenue?
  Customers 13-200: How can we increase profitability?

reason2• 15 years ago

That's really unfair. Whilst I agree there's a disconnect, I wouldn't say it's specific to HN, but rather to the entire industry. The reason why you see those Ask HN posts is because people are looking around and realizing that those types of services have been getting tons of funding and attention.

There's a disconnect, but it's in the social web world, not just HN. And I would say HNers are trying to capitalize on the hype.

haploid• 15 years ago

I disagree.

I think the reason you see those kind of posts is that those kind of applications are low-hanging fruit. The development of Yet Another File-Sharing App or Social Media Service can be accomplished by anyone with a "Learn Rails In 21 Days" book and a credit card.

Companies that are also getting tons of funding right now are biotechnology and solar energy startups, but I have never seen anything along the lines of a "Ask HN: Review my research on getting 3.3% more current per solar flux unit by doping gallium with boron" post, despite the fact that such an accomplishment would likely garner extremely good investment and/or business prospects.

arkitaip5• 15 years ago

Which is why you never engage in business ventures based on what customers claim they need/want. How many companies expressed a need that would make Twitter or Facebook happen? Yet these services are nowadays a crucial part of many companies marketing efforts simply because a bunch of business people had a vision or scratched their own itches.

nhangen• 15 years ago

I wouldn't say never, but I do agree that scratching your own itch is a great way to go. If nothing else, for happiness.

karanbhangui2• 15 years ago

Agreed. It's not to say these products aren't successful, but you and I seem to be very traditional business people. I always find at least a few customers willing to pay for what I'm going to build and some sort of a competitive advantage I have over the potential competition.

spatulon• 15 years ago

The customers in your first list are individual consumers, and the customers in your second list are businesses.

You're right about the triteness of those Ask HN examples, but let's not go so far as to suggest that we should all be building for businesses, and only businesses.

orky562• 15 years ago

Those needs are dismissed as lifestyle businesses that can be bootstrapped and/or cater to enterprises and SMB. It's more glamorous and HN-friendly to be working with the latest technologies and recreational uses of them for consumers.

nadam3• 15 years ago

B2C (and tools for programmers) is overrepresented amongst hackers because it is easier to gain domain knowledge in these territories especially for young hackers. I also think that B2B is still underrepresented, and I am more interested in that. But we should also note that solving Customer n's problem is very different than solving Customer M's problems at once where M is s big set of customers. The first is 'consulting', the second is building a product and a scalable startup. The second is much harder than the first, that may be also a reason for not being there that much B2B startups (but lots of consulatants).

mindcrime2• 15 years ago

I also think that B2B is still underrepresented, and I am more interested in that.

It is, but there are a few of us around. I'm working on an enterprise software startup, focused on information retrieval and knowledge management. Pretty far removed from the typical HN "location aware, social photo-sharing with gamification" stuff, but I think it's actually more interesting. But that's just me...

hello_moto• 15 years ago

You know we're in a bubble when everybody thinks that everybody else is a hacker ;)

Travis• 15 years ago

b2b startup here! We got our idea b/c 2 of my cofounders worked in the industry, and spent 3 years noting the problems with their field.

That's a very difficult thing for a 23 year old hacker to get exposure to. In order to get that job in the first place, you'd need a mechanical engineering degree, then spend several years at the plant.

On the flip side, we've just started to place ads on our sites via google's adsense, and we're getting > $15 RPM already.

B2B is where the easier money is, in my opinion. (That also applies to women-focused companies).

okaramian3• 15 years ago

Definitely agree. There are lots of large problems and lots of behind the times applications being used by businesses. There is a lot of room to improve efficiency and cut down on costs.

I have a couple ideas for B2B type systems, my real problems are how to market and sell those applications. I guess I don't really have knowledge in how companies adopt technology. It seems easier (although less profitable) to sell to individuals since it's one person's decision process, not an entire organization.

revorad2• 15 years ago

It's more fun to build consumer apps.

euroclydon• 15 years ago

Q1) How can we increase conversion from 2% to 4%?

A1) Well, this [file sharing/social/twitter/facebook/iphone/game/photo/video] application sure has people's attention. Their developers are wicked smart and have a plan for monetization by utilizing the geo/demographic/taste data of their customers to make it easier for you, the b2c business to target them with advertisements.

Q2) How can we increase revenue?

A2) See A1.

Q3) How can we increase profitability?

A3) See A1.

See also: why should anyone publish this magazine, TV show, blog?

Keyframe• 15 years ago

I'm fairly often here, but I've never, even once, saw "How do you like my game?" except for that little airplanes game (but it was mentioned in the comments, not a post)... care to provide me with some links to those games? I'm interested to see those.

cma• 15 years ago

Who would take pleasure in reading Hacker News if it became about almost any of that customer stuff? All that stuff could be getting submitted and just not upvoted, because it is boring.

mindcrime2• 15 years ago

All that stuff could be getting submitted and just not upvoted, because it is boring.

It's not boring if you want to become very wealthy. For reference, see jasonlbaptiste's "How to become a millionaire in 3 years?" post:

http://jasonlbaptiste.com/startups/how-to-become-a-millionai...

These bits in particular:

Charge for something- Building a consumer property dependent upon advertising has easily made many millionaires, but it isn’t the surest path. It takes a lot of time and scale, which due to cashflow issues will require large outside investment probably before you are a millionaire. Build something that you can charge for. That’s how business has worked for thousands of years prior to the 1990s.

Make Sure You’re Robbing A Bank- When Willie Sutton was asked why he robbed banks, he said because that’s where the money is (Thanks to edw519 for this phrase). Make sure whatever you’re going after is where the money actually is ie- a customer that will pay you. Consumer markets are tough, especially with web based products. People expect everything to be free. Businesses are usually your best bet.

If you buy into that, then reading about customers (and business customers in particular) is VERY interesting.

patio11• 15 years ago

To add, approximately one half of people in the real world share a common demographic category with a sliver of HN users and a fraction of a sliver of what we create.

Women have money. Go take it. Nobody else wants it in tech. (Well, aside from Groupon, Zynga, and a few other companies that missed the opportunity to make an iPhone app that you could wiggle to share photos.)

dmarinoc• 15 years ago

They do not only have money. They have a strong influence (and almost always the last word) in most of end-consumer buying decisions.

It's strange so little companies focus on them

theklub• 15 years ago

You may not be aware but there are a lot of other websites taking money from women. IE. shoe website innovations. I recall there was also some fashion site at TC Disrupt that reminded me of Swoopo. I wonder what happened to it.

elai2• 15 years ago

I know what you mean. When I've suggested targeting a female demographic with things that are somewhat silly, but most women just go crazy over (seen by how many women get into similar thing in several businesses) I was dismissed out of hand.

cookiecaper• 15 years ago

The Palm Pre used this strategy. Not that it's necessarily bad, but I don't think it's necessarily an instant cash-in either. You have to do things correctly and carefully, and I think the difference between appealing primarily to women and appealing to men is fundamentally a stylistic one.

pkulak• 15 years ago

I've got a web app that's used by mostly women, but for some reason I'm not swimming in cash. But I wish it was true!

code_duck• 15 years ago

As far as commerce, Etsy has done very well in the female demographic. Their membership is heavily female.

bambax• 15 years ago

> Women have money. Go take it.

What do they want?!? I could never figure that one out.

ErrantX6• 15 years ago

There is also a huge (multi-Billion dollar) "industry" for corporate level software that is under serviced in many areas (i.e. the software is churned out by large development houses and is below par).

Yet very few startups seem to target these areas.

We took a product into a badly serviced industry and were wildly profitable within about a year on minimal funding. I always worry that there is a growing amount of speculation on "great teams"/social media and less focus on creating useful stuff that companies/people want/need (and, damn, there is a lot of it).

My boss always moans when I talk to him about startups and VC's, he usually says "if you give me $100,000 and 6 months I could come out with at least 5 profitable pieces of software and sales to return your investment by the end of the next year".

runevault2• 15 years ago

Selling software to large corporations however requires significant support effort and bending over backwards to make the sale. I seem to recall an article about hunting elephant versus deer that covered the issues quite well.

Dealing with just the development side of it in my day job, no way does dealing with them on my own or in a small startup team appeal.

elai2• 15 years ago

You guys are a security consulting firm from what I see. What products did you create for that?

ChuckMcM• 15 years ago

"Yet very few startups seem to target these areas."

Perhaps you're seeing an artifact. Generally the startups you hear about on HN and elsewhere are trying to generate 'buzz' and 'raise awareness' to get to 'closing a funding round.'

As you yourself demonstrate when one starts a company to solve a problem for which there are already customers in pain (and thus willing to buy the product), they can generally, if they execute well, get started and get profitable early on and then grow organically by expanding out from their customer base to adjacent markets. All without any big funding round or 'buzz gathering.'

Solving known problems well, gets you a steady paycheck, its not 'sexy' and its not usually 'disruptive' and it is very very rarely even brought up in places like this.

Because the problems are known it also means are are usually several players trying to get to the same dollars and margins are limited right from the start as people compete to be the chosen solution out of a variety of solutions.

Disruptive changes on the other hand, take a market with a reasonable capital flow and shift it all to a single player. Depending on how long that shift lasts, the return on investment for that player is 10, 100, even 1000 times higher.

The other problem here is that if you are a VC fund you can't leave the money you've raised in T-bills forever, you really really do need to invest it. So there is pressure to put it out there and get it working for you, and if its been getting 2 - 3% in T-bills and your clients were expecting 20 - 30% then the longer its been sitting the bigger a pop you want to spend it on. A very strange but measurable forcing function.

businessguy• 15 years ago

This is very true. I can give another example(maybe bit-offtopic for HN).

A very good friend of mine worked in IT for like 10 yrs. He was quite good programmer, CTO etc. One day he decided to radically change his carrer and opened... 5 Subways in Eastern Europe (he is originally from there). FFW 2 yrs => his restaurants making him $400-500k/yr, he spends zero time managing them and just focused on opening new ones.

His lesson: IT industry has one of the hardest competition rates cause all super-smart geeks are competing on relatively small marktets. Other industries competition (esp in emerging markets) is seriously overrated.

Another example - my very stupid app for selling video files just crossed $1000/day mark in sales. Ppl just need simple tools to get things done.

Vivtek• 15 years ago

Argh, don't remind me about Subways in Eastern Europe. When Subway opened in Indiana, I told my (Hungarian) wife that if she wanted to make serious money, we'd open a Subway franchise in Budapest. She said, "Why would you try to sell crappy bread like that in Hungary?"

Sigh.

MikeCampo• 15 years ago

Do you mind sharing a link to your video selling app?

blhack• 15 years ago

You're missing the point.

Most geeks that I know aren't trying to build apps that make money, they're trying to build apps that are fun, and that their friends think are fun.

If you offered me two choices

A) Make a million dollars a year doing something you hate that nobody will know about or care about

B) Make no money doing something you love that your friends think is cool.

I will almost always choose B, and I think most hackers will also always choose B. I would go as far as saying that choosing B is one of the defining characteristics of a hacker.

I got into computers because it was fun, not because I saw dollar signs at the end of it. Writing a video sharing app is a lot more fun than writing a software that reduces credit card fraud.

umjames• 15 years ago

Can't you have both? Take option A for a few years. Save most of that money, then quit. Take option B for a lot longer than you could have if you didn't take option A first.

But seriously, I understand that option A almost never pays that well and is usually not guaranteed. For example, working for stock options that you'll most likely never see vest.

Also option B is not guaranteed to make no money either, and at least you like option B. So, I'd take B too.

warrenwilkinson• 15 years ago

When I was younger, all I wanted to do was make video games. But as I got older, I found I had writing business apps was more fun (especially when I picked the language).

tzury• 15 years ago

    A) Make a million dollars a year doing something you hate that nobody will know about or care about

If you got million dollars paid for the thing you built, that is million times "know about" + million times "care about"

    B) Make no money doing something you love that your friends think is cool.
    I will almost always choose B, and I think most hackers will also always choose B. 
    I would go as far as saying that choosing B is one of the defining characteristics of a hacker.

One can find the golden path to make something one loves, something his friends think it is cool and yet, something which million people will find it worth paying a dollar a year.

Doing cool things, things "friend think it is cool" is nice, but you cannot go to the grocery with, nor pay your bills with it, right? Besides, that cool thing, will soon loose it glory to something cooler unless it will be maintained and evolved. Money is a great way having one stick to a project and keep it up and running.

pessimizer• 15 years ago

You're frontloading the question. What if it was:

A) Make a million dollars a year doing something you love that nobody will know about or care about OR

B) Make no money doing something you hate that your friends think is cool?

...

If the question that you're trying to ask is, with all other things being equal, would you:

A) Make a million dollars a year doing something that none of your friends would know about or care about OR

B) Make no money doing something that your friends think is cool.

I would choose A every time. Also I'm not sure how you can say that writing a video sharing application is a lot more fun that writing software that reduces credit card fraud without knowing about the techniques used in the particular pieces of software. I'm interested in algorithms and neat techniques, not sharing videos or credit card fraud.

I'm still vain enough to think I'm a hacker, though:)

danssig• 15 years ago

I would take A without question. After just a year or two I'd have enough money to work on my own fun-as-can-be-but-will-never-make-money projects for a decade or two.

dagw• 15 years ago

Writing a video sharing app is a lot more fun than writing a software that reduces credit card fraud.

I knew a guy who wrote software to reduce credit card fraud and he thought it was great fun with lots cool statistical analysis and data mining problems to play with. And personally I think that sounds a lot more fun than writing video sharing apps.

sabat2• 15 years ago

That does not a bubble make. Hackers are hacking a lot != we're in a bubble. A bubble is a stock market bubble based on mass amounts of over-investment by VCs and the public.

run4yourlives• 15 years ago

Re: Customer 2: How can we reduce inventory by $300 million?

I'm wondering if anyone has explored the outsourcing of inventory? In other words, would it be viable to establish a giant warehouse of all things that people could use as their own personal warehouse... like co-locating a server.

illumen2• 15 years ago

This is how a lot of businesses work. You place an order with company A. Company A orders from company B, then delivers to you.

There are reasons some companies do well at this. A lot of it has to do with setting expectations, and giving accurate information about pricing and availability.

Company B may only ever sell to a handful of other "retailers".

aaronblohowiak• 15 years ago

Yes, "pick and pack" warehousing / shipping facilities will store your stuff and even put it in boxes and ship it to your customers for you. The problem isn't storing the inventory, the problem is owning the inventory. Ultimately, reducing inventory must go along with having a quick delivery time from your upstream suppliers...

sudonim• 15 years ago

Probably unsurprisingly, Amazon and a bunch of others offer this. http://www.amazonservices.com/content/fulfillment-by-amazon....

bradgessler• 15 years ago

If you were at YC demo day this week, you would have seen some very solid companies that are addressing those 'Customer' issues that you list below. I was expecting bubble when I walked into the door at YC, but walked out of there thinking the total opposite.

I can't speak for all the other companies out there.

binksty101• 15 years ago

Back in the old timey days, you made a product people needed or you were through making said product. Today, I'm astounded by how many products/apps do the same thing as their competitors. Take iphone camera apps for example; why are there so many? Why are they getting funding? Do people need a sepia toned camera app? Is it making their lives easier?

This is not so say that innovative and "cool" apps don't have a place - they do. But it is to say that there's something concrete about making a product people need that solves a basic human problem. “My damn phone won’t take a sepia toned picture,” is not a basic human problem. In terms of a bubble, and more so, in terms of revenue – making a product someone needs assures revenue and harkens back to the old timey adage.

So is there a bubble? Yeah. Can it be quelled by a return to making products that help people with basic needs? Yeah. Do I want a camera app with sepia tone? Sure. Do I need it? No.

hoprocker• 15 years ago

I come to Hacker News to see what interests a small demographic with whom I share some. To find out everything else, I go out on the street and interact with people.

david927• 15 years ago

We're still just starting a watershed moment for ways of finding productivity gains, forms of entertainment, ways to connect and share. We haven't scratched the surface yet. There are huge leaps being worked on in the foundation technology.

Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.

davidw• 15 years ago

> Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.

That happens eventually, it seems, in a somewhat roundabout way, to some degree. Look at where the money from Viaweb ended up, as one example. Lots of successful people's money ends up as angel funding: Paypal, Delicious, and so on.

eli• 15 years ago

I'm pretty sure Dropbox paid a lot more than $7.95 for "dropbox.com" It's actually somewhat difficult to find an unregistered, pronounceable domain that's under 6 or 7 characters.

karanbhangui2• 15 years ago

Dropbox had an already successful product operating on getdropbox.com. When you have some revenue numbers to play with, it makes sense to invest serious capital.

jules• 15 years ago

Is it actually important to have a short domain name? I either seldom visit a site, in which case I visit it through google, or I often visit the site, in which case it's in my url history completion list.

tyng7• 15 years ago

The $41m injection might well kill the company. I've never seen startups with too much capital early on to become the next Google/Facebook/Twitter - you lose your chance to become "relentlessly resourceful"!

blantonl3• 15 years ago

there is a big difference between having the capital available and actually spending it.

tyng7• 15 years ago

Doesn't it make you a bit relaxed? I've seen the effect of "too much money" first hand, regardless of spending

wat554• 15 years ago

Sorry, but your company dies when you have no more cash. The $41 million will help them survive for a long time.

tyng7• 15 years ago

But the point of the $41m from an investor's perspective is to get them to scale, not survive.

rapind2• 15 years ago

If the $40m is mostly for marketing / advertising then this is definitely reminiscent of the last tech bubble.

digisth• 15 years ago

We might be, but are bubbles always bad? Lots of money gets thrown around. More people get jobs. Ideas are everywhere. People get experience starting and running companies. Interpersonal and business networks are built. Lots of bad ideas are funded, sure, but a few great ones also emerge.

We shouldn't condemn bubbles as automatically bad. We should be aware of them, though.

PaulJoslin• 15 years ago

The problem with a bubble, is not that 'money is thrown around' by investors - but that the source of the money ends up being in public hands.

The founders get their investment from the investors. The investors get their money back when the company is acquired (or makes money).

In the early stages of a bubble, this process generally consists of 'money being thrown around' as you say.

However, due to the hype of the returns from these 'investments' (e.g. Facebook growth) - it attracts the public investors into wanting to get in on the 'action'.

Typically this is done through an IPO, which allows the public to come on board and potentially pay all previous investors / founders down the chain their money back (plus more).

However, even without the IPO's of the last bubble (and they may still come!) - the public money is finding a way in (e.g. Banks setting up Social Media Investment Funds). Not to mention any other general investment companies having some of their portfolio riding on 'internet based stocks'.

Then when the bubble eventually bursts (The trend reverses and everyone tries to get out while they can) - it is often the public investors which are left out of pocket / losing their homes / etc.

The point made at the end of the article is, if you are in a start up right now (or even a VC) - it is better to get out early, than to get greedy and end up getting burnt when it bursts (e.g. GroupOn).

RyanMcGreal• 15 years ago

> No more 'x' buys 'y', where 'x' is some established player and 'y' is some new kid on the block that has a fancy office with pinball machines a hip domain name and an in-house chef.

Or as was often the case, 'y' buys 'x'.

michaelcampbell• 15 years ago

I don't know if it's a bubble or not, nor do I have any idea if it's just because of where I browse (self selection), but I've noticed a trend lately. The trend is that people are excited about a startup BECAUSE IT'S A STARTUP, and not because of what the underlying value of the business' model/idea/value. As if the fact something is a startup is, in and of itself, somehow magical and has intrinsic worth.

It reminds me of a few years ago when people were all googaw over social networks, because they were social networks. That seems to have passed now and they're focusing a bit more on how social can help this cause or that business model.

jarin3• 15 years ago

Without any real knowledge of the VC industry, to me this "bubble" looks like VCs are just suffering from a lack of things to invest in due to the proliferation of angel investors.

They need to show their investors that they're doing something, so they throw a grip of money at a company with a solid group of founders and a roadmap full of the hot buzzwords of the day.

orky562• 15 years ago

Back to the days of which venture has the highest burn-through rate!

toddmorey2• 15 years ago

As someone else commented, Facebook could easily add a feature to show pictures from friends geotagged with your current location. (Not a perfect replacement but a lot of the magic.) Apple also appears to be getting aggressive in this space with the new version of mobile me. Color has an interesting vision, but I think traction as a photo sharing add-on is going to be tough once the social network and the mobile device maker get into the same exact business.

bhousel5• 15 years ago

What is far more likely is for Color to try to get themselves acquired by Facebook.

If this is their real company strategy, the $41M investment actually makes sense.

jamesmcintyre2• 15 years ago

that's exactly what I was thinking. I see this as being a very novel concept that if reaches a certain threshold of brand-awareness and good design could be a perfect acquisition target because merely replicating the feature-set would be like Google Video before Google acquired YouTube (it wouldn't be about the technical capability as much as the culture and community around the novel concept).

notahacker3• 15 years ago

I'd say it's the opposite, it's made them very expensive to acquire. It's not inconceivable that with the right team and a very impressive tech demo Facebook might have been prepared to sink >$41 million into a strategic aqui-hire at a very early stage.

Now to give the VCs a return on their investment they're probably expected to exit at north of a billion, which means they're going to have to show Facebook something special in terms of revenue or user-interaction generation or targeting they can't get from any of the many other smart developers who've taken less funding for their location startups.

klochner• 15 years ago

That's pure bubble talk - "we don't have to generate profit to justify the investment, we'll just get acquired by someone else"

SOMEONE has to generate a profit based on the technology which justifies the investment or acquisition cost, whether it's color or their eventual acquirer.

techiferous• 15 years ago

What about the popularity of the lean startup approach? The focus on data and customers tends to keep those startups real. Shouldn't this mitigate some tendency toward a bubble?

yannickmahe• 15 years ago

What I don't get, economically speaking, is how we can both be in a bubble and in a barely recovering economy. In other words, how do these angels and VCs still have that much money to invest in such companies?

tyng7• 15 years ago

Ever heard of the term "two-speed economy"? It's happening right now on a much larger scale in Australia.

jacques_chester3• 15 years ago

Indeed. Today in The Australian there was a story about laundry hands on offshore rigs being paid ~$420k.

http://www.theaustralian.com.au/national-affairs/laundry-sta...

adaml_623• 15 years ago

Pay attention and you'll see that the rich have been getting richer even with the recession.

They need investment opportunites and investing in real estate probably isn't popular. Hence angel funds have tons of money to throw around.

futuremint• 15 years ago

Most VC's are backed by enormous pension funds and/or other group retirement vehicles. This is how they can afford to bet large sums of money on multiple companies with an expected payoff of only 1 in 10 companies on long time frames.

The pension isn't using that money (right now anyway), so the VC is free to do with it what they want, and in the end the money comes back to the pension in multiples.

At least this is my understanding talking to an actual VC (not in a fund-raising situation, just casually).

bhurt• 15 years ago

One reason I know we're not in a bubble: because everyone is saying we're in a bubble.

For you young whippersnappers who were too young to remember the 90's, a bubble is a manifestation of irrational exuberance- with (almost) everyone saying it's a whole new market, it doesn't matter how much the thing costs it's worth it to buy it because it's price is just going to keep going up up up, so do whatever you need to do to buy in now, because the longer you wait, the less you make.

In other words- it's a bubble when everyone is saying it's not a bubble. But if everyone is saying it IS a bubble, then it's not a bubble.

There is a difference between a healthy (or at least "not on death's doorstop") economy and a bubble.

trotsky4• 15 years ago

Make no mistake, a big factor in the creation / encouragement of recent bubbles has been super easy monetary policy that provides cheap and easy credit.

In '00 we had a market crash after a dramatic run up of stocks in general and tech in specific. In 1998-1999 rates were low and credit was easily available [1]. As we led up to the millennium changeover ("Y2K") unprecedented amounts of short term capital were made available to banks and other institutions to allow them to weather any run on banks that might occur [2]. This money made it out the the markets and proceeded to whip them into something that was similar to a drug fueled frenzy: the nasdaq has never come close to those levels again. Alan Greenspan later noted that he believed his actions played an important role in the boom/bust. Once the fed windows closed for Y2K and interest rates were pulled upwards quickly all the money disappeared. Coincidence?

After the dot.com bust targeted rates were lowered dramatically to attempt to smooth out the markets. Check out this chart of historical fed funds rates as it is really easy to spot the cycles [3]. The next bubble was in housing, and predictably it began to burst when interest rates were raised again.

Look at that chart again [3]. The last couple of years have seen the lowest interest rates that have ever been available since the chart started more than 50 years ago. They have been approximately 0 for some time. In addition, the quantitative easing programs that the fed has engaged in (currently, QE2 composed of $600BN worth of treasury debt purchases) has left monetary policy so easy that if it were a woman the village would be talking.

I've heard some confusion about how this money makes it into the markets. It's really quite simple. Many people and organizations who would normally put some of their money into safe debt like treasuries decide not to because they can't make any money off of it and they are concerned about the effects of inflation. This causes them to look for better investments that will have a chance of returning something decent. The explosion of angels in SV is directly related to this process - these geeks, unable to make a good return in some traditional markets switched to making private investments. If more money comes into a sector, valuations will naturally rise and the quality of the companies funded will likely fall (or at least that seems reasonable to me).

QE2 is scheduled to end June 30th, 2011. Unless it is followed by a "QE3" (which there is probably a strong chance of) monetary supply will contract and interest rates will rise. At some point fed target rates will need to rise as a response to current growing inflation in the commodity markets and the retail increases in food and gasoline. Once the fed signals that the party is over, a ton of this money is going to run for the exits [4]. Don't expect to be able to close your next round unless you're of stellar quality or can hold out for 2-3 years.

Or at least, that's one version of it.

Of course, no one whose business relies on the expansion of public and private equity prices will explain this to you. The reasons for that should be relatively obvious.

[NOTE: I am not an economist. I wasn't classically schooled in this stuff. I'm also not a tea partier nor do I have any particular political axe to grind here. I am just a coder who has been watching carefully since the dot-com crash when I took a very big haircut. Take it all for what it's worth]

[1] https://secure.wikimedia.org/wikipedia/en/wiki/Dot_com_bubbl...

[2] http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id...

[3] https://secure.wikimedia.org/wikipedia/en/wiki/Federal_funds...

[4] http://www.chrismartenson.com/martensonreport/coming-rout

danenania6• 15 years ago

Good post. It seems common for participants in an industry undergoing a bubble to concoct elaborate industry-specific theories to explain a sudden influx of new money when the real cause is, well, exactly that: a sudden influx of new money. Unfortunately, we've been trained to correlate the numbers in our bank accounts with actual value, but the link has been all but severed for a long time.

It seems unbelievable that we as a population could keep being fooled by the same trick over and over, but when you look at the sums involved for those who benefit, it starts to make sense. This racket dwarfs even the military-industrial complex. It's rule-the-world money. In my opinion, anyone who tries to portray the situation as obscure or highly complex either has a stake or has succumbed to propaganda--printing money always causes artificial booms, and artificial booms always lead to busts. It's been true since fiat money was invented and it'll be true until we evolve beyond it.

wat554• 15 years ago

This is completely wrong and absurd. We've had a gradual inflation rate since the beginning of the U.S. Dollar. We were headed toward a deflation without the QEs, which would've been a disaster in a highly illiquid economy. The QEs simply brought the inflation back to a good, gradual rate, and put more liquidity into the economy so businesses can start hiring again.

api3• 15 years ago

I don't think anyone is really being fooled anymore. They just get the game, and understand that cheap-money bubbles are a normal part of that game.

cynicalkane4• 15 years ago

The current inflation rate suggests that the supply and demand for cash is in balance. This might not be true, but you won't disprove it with unsourced conspiracy theories.

api3• 15 years ago

I personally think that the fed now has no choice but to pump money at zero (to effectively negative) interest forever.

There's a number of reasons for this: demographics, peak oil, the massively deflationary effect of certain technologies, etc. The west really looks a lot like Japan, which has pumped cheap money since their economy went through a similar cycle of stock bubble, real estate bubble, and crash.

So expect bubble after bubble...

That being said, the existing hype is nowhere near 1999 levels. If this is a bubble, it's a mini-bubble. I lived through that time, and it was an entirely different ballgame.

danenania6• 15 years ago

The question is what happens if/when inflation gets out of hand. Raising rates causes deflationary collapse, mass unemployment, and default on government debt. Keeping them low risks crippling inflation which could lead to social instability even in the US. What's a Fed Chairman to do?

Deflationary collapse is the only path back to a sustainable model, but it's extremely painful in the short term and so nearly unthinkable that a politician would choose it unless all but forced. Are you thinking things just won't get bad enough to bring the situation to a head?

todayiamme• 15 years ago

>>> has left monetary policy so easy that if it were a woman the village would be talking. <<<

I like the comment, but that's just sexist and offensive on so many levels that I lost count.

dclaysmith3• 15 years ago

Someone should track the Color Fund vs. the 43 participants in YCombinator W2011 class:

Round Color's (err) round up to $43m. Then say that Milner's 150K was actually $1m with the same terms (convertible debt). You'd have 2 investments of $43m. Track follow up rounds for the 43 YC alumni and Color and see which pot grew the most.

kongqiu• 15 years ago

I know which side of that bet I'm taking :)

brackin• 15 years ago

.com's are no longer important, blekko, duckduckgo, drop.io and similar companies are proving this. It's not a big deal anymore. Every time I pitch Reward.io I get asked "how will It make money" so saying that profits don't matter anymore is a big understatement in my opinion. New business models are being developed and used to make money like Freemium and more subscription models.

There will always be some startups with over valued valuations but the big thing is startups don't think they are invincible, with Digg and Myspace startups know they could die if they don't work hard and try and find a way to make money, even twitter which has gone almost too far recently with DickBar.

NxguiGui• 15 years ago

Don't follow the hype:) The way i see things is simple. X angel/vc knows how to play the game of taking some Y startup with non super unique idea/product and sell it to the Z highest bidder. When X invest money the most important thing is to make Big News. The Z are full with money to spend, they know that money need to circulate in order to multiply. They watch The News. They react. With money. On the other side of the line are X, they also watch the news, dream for success and want to be Zuckerbergs. And so on. From my perspective the smartest move is to connect demands of Z and availability of Y. Be a X or The News channel. But i am small, insignificant, away from first hand experience and everything that i think is away from The Game that is x,y,z. Thinks i can do with one million funding, if i have it, in terms of product development, team building, business development, are so old school and simple that are not interesting to put here at all. For me in this position the only valuable model is bootstrapping everything, test early in real world and iterate slowly and carefully in terms of technology and business model. But i deeply respect The Game of x,y and z, not so in direct meaning but as side effect. If all this money are 20% effective they push new technology to the limit and test the audience and give as a valuable lessons without risking money that we don't have. So if Z want to spend it's their decision to make. Our is to choose a) to be valuable Y or b) to be other letter in the equation making our own working function, with our own proven methods and variables:)

wat554• 15 years ago

Sorry, but the U.S. economy is a $14 trillion economy. Anyone who says we're in a bubble based on the aggregate Silicon Valley venture capital funding in the last year is getting ahead of themselves. Before you lecture us on a bubble, try to understand some basics on the U.S. economy.

sharonpaul• 15 years ago

I am commenting from the perspective of someone who is not in the US. Currently from the Asian region (excluding China), valuations are no where near that of the US. In Singapore alone, even with for a startup with vast customer based overseas is being acquired for only $10million. Yet, that $10million acquisition is more than enough to make the startup a superstar in our ecosystem.

Perhaps this bubble is only present in the states, but elsewhere in the world, valuations are still reasonable.

mendable• 15 years ago

Asking the wrong question?

What about asking, "How has taking this amount of funding helped this business?"

Strategically, this much funding through all of the controversy it has generated, will guarantee this company/brand gets in front of nearly every early adopter over the next couple of weeks.

It will drive hundreds of thousands of people to try it out.

And that's before they've spent a penny of it.

Loads of Posts on HN alone excitedly linking to the app on Android etc (one on the front page right now).

After that, it will sink or swim on it's own merit.

Would that have happened if they hadn't taken this funding? No. It would have had 5 minutes on TechCrunch, and then been forgotten about because it may not have been remarkable.

Now all they need to do is implement a business model / some way to make money from it so their per-user revenue exceeds their cost of user acquisition, and use the remaining $38,000,000 as a marketing budget to spread it to everyone else. Profit.

kovar5• 15 years ago

So, of the $41M, $3M goes to technologists and $38M goes to ad agencies? Hmmmm....

kia• 15 years ago

jacquesm really added ads to his site.

joelhooks• 15 years ago

This is a typical business cycle[1]. Easy credit, low interests rates, no incentive to save.

[1] http://en.wikipedia.org/wiki/Austrian_business_cycle_theory

fastviper• 15 years ago

TL;DR: bubble is intentionally blown, so that certain people earn more money

Pumping bubble is intentional. Financial world knows and uses this technique for years. They KNOW we have a bubble and THEY pump it up.

They earn money on stocks rising while bubble rises.

The more they invest, the more people come to them with the money (for investment). They earn money on those people (commissions, investment credits, accounts, personal advisory). And as more and more money pours from the sky, the market rises. And they earn on stock rising.

Suckers (commoners like we) believe that they can catch a train with next Facebook and sell houses or use life savings in hope for a fortune. And financial world earns.

At the proper moment leaders of this mess bail out and we have a "crisis".

Most people decide to invest too late (for example now it's much too late) and also bail out MUCH too late (after few hours or days from bubble blowout).

But those managers and capital owners.. People cry, media report suicides and they just are buying another Ferrari and houses in the Canarian/Carribean. They smoke a cigar, drink whiskey and looking at the sky think: 'suckers, so long till next bubble'.

Works like charm for years. So sad that for example my country's currency ex ratio and stock exchange is so vulnerable to this.

Financial managers are not stupid. They are pragmatically cynical.

frederickcook• 15 years ago

Best summary of bubble/non-bubble debate I've read yet:

[Are we in a bubble?]

“Maybe,” says Naval, “Certainly valuations are creepy up quickly in all stages of deals. On the other hand, 10 years ago when we all felt like this last time the total market size for any company was at maximum 100 million potential users. Now we’re in the billions of users. Facebook connections alone bring 500 million, Twitter 200 million. 10 years ago we only connected for brief periods of time when we were at our PCs. Now we’re connected to apps all the time, everywhere we go. So maybe there’s a bubble. It’s hard to say. But we’re also looking at unprecedented opportunity.”

- http://www.bothsidesofthetable.com/2011/03/22/the-magic-midn...

svrocks• 15 years ago

We're not really in a bubble until Color.com (NSDQ: COLR) IPOs at a $500MM valuation and quadruples on its first day of trading.

And then we're not REALLY in a bubble until Air.com, the leader in the social breathing space IPOs at twice that.

thedaveoflife• 15 years ago

relavent link to his point about domain names: wallgreens buys drugstore.com for 409M.

http://dealbook.nytimes.com/2011/03/24/walgreens-to-buy-drug...

ohashi• 15 years ago

I think the domain name argument is bunk. The domain market isn't 'hot' again by any means. In fact it hasn't recovered from peaking in 2007-2008.

Kilimanjaro• 15 years ago

So flickr goes mobile, gets funding, is sold for some billions, then a decade later it is dumped for a handful of millions?

The lesson here is not to blame the idea guys, they will profit from it dearly. Or blame the initial and subsequent investors all the way up to the (ponzi) pyramid, they will profit too. Or even blame the guy who signed the deal when bigCorp bought them, he got his cut under the table too.

Blame the poor souls who own shares of bigCorp for not enforcing accountability in their C*Os spending money left and right chasing the next bubble.

evo_9• 15 years ago

From Colo[u]r.com:

"Think fast!

Find someone. Take pictures together. Party. Play date. Lunch?

Simultaneously use multiple iPhones and Androids to capture photos, videos, and conversations into a group album. There's no attaching, uploading, or friending to do.

Share together in a new, moving social network. Just look around."

kovar5• 15 years ago

I wonder if encouraging people to digitally record everyone around them will lead to legal troubles at some point? Back in the day when I shot film, I'd often get the subject to sign a model release. Society and technology have changed a lot, but if we're going to monetize something like Color, the people whose images appear may want some of that money.

grellas• 15 years ago

I guess it is a matter of terminology but I have to disagree on this one.

A bubble is all-pervasive and extreme. It represents a systematic investment mania where everything becomes surreal. People sell vast tracts of land for a prized tulip. Junk companies with nothing to offer but a vague concept about revolutionizing how this or that will be done owing to some new phenomenon such as the internet make serial stock offerings to the public and get hundreds of millions for a modest percent of their unproven company. Lenders pile on with countless real estate loans to unqualified borrowers secure in the belief that what are really worthless loans will make them huge profits because they can be packaged and disposed of through artificial securitized instruments and because housing prices will continue rise broadly for endless periods. All this begins to occur in endless and ever-expanding streams until, in the end, large numbers of people are sucked into the vortex.

In such cases, broad markets affecting an entire society are sent into a frenzy by which average people start both to get rich quick and to want to get rich quick. Large numbers of people leap in, therefore, in the hope of making fast money and abandon their common sense in the process. And when things go bust, this has a major systemic effect on the broader economy. A stock market that had reached stratospheric heights loses 70% of its value. A real estate market that had become so pricey as to make housing unaffordable for average buyers plummets to the depths, taking down people's savings en masse.

The current phenomenon represented by high valuations in parts of the startup world is more transient and limited. It has not affected the broader society at all, only an insular investment community. If it fell apart today in toto, it would leave a trail of victims within the VC and angel communities but would be felt scarcely at all in the broader economy, or at least would likely have no systemic impact.

Viewed from the standpoint of the broader society, I think what we are looking at here is a speculative frenzy affecting a comparatively narrow asset class. The prices of some startups have increased considerably. The prices of companies generally in the business world remain moderate, if not depressed. Is it a pricing frenzy within a particular segment of an asset class? Probably. Is it a bubble? No. Or at least not by historic definitions.

Again, I wouldn't disagree with a single specific point made in this piece, and the author as usual makes some astute observations. I would disagree about the terminology, though, and would say that we should reserve use of the term "bubble" for the sorts of massively dislocating events that it historically has come to represent.

klenwell2• 15 years ago

This is a great point. To condense what you said a bit: the dot-com bubble followed the democratization of stock trading (which itself got a technological assist from the internet). Lots of people, myself included, who never bought a stock start using online trading accounts. The housing bubble followed the democratization of home buying. Lots of people who never had bought a house before (or a second or third house) start buying houses.

The question I've been asking for a while now: what's the next great financial innovation that's going to revolutionize access to some market to which average people don't currently have easy access?

I want to be on the upside of the bubble.

klenwell2• 15 years ago

Going to offer an answer to my own question: where's the next bubble?

My boring answer has always been: commodities. Yeah, ordinary people can buy and sell precious metals now. But wouldn't it be more convenient if you could just directly buy a nicely packaged product online (with no service premium) that represents whatever arbitrary commodity or commodity future (or whatever it is you trade) you desire? I'm sure this would do wonders for oil prices. All those gold trading services that advertise on cable seem to be a niche example of the phenomenon.

However, I just came across something which may offer a more interesting answer: bitcoin, or more generally, currency. I going by what I was just reading here:

http://www.reddit.com/r/programming/comments/g7zlw/google_en...

I don't fully understand what bitcoin is. But I'm sure that will only be part of its charm if it ever goes mainstream. At any rate, just an idea.

illumen2• 15 years ago

It is energy generation, and energy saving.

ChrisCooper• 15 years ago

There has been a recent democratization of web- and mobile-applications, has there not? It's super easy for me now to make an site with Rails to do x. Same goes for creating and publishing mobile applications. Anyone can now easily make and sell an iPhone app. When has this ever been possible? This is the current democratization, and I don't think it would be unrealistic to suggest it could lead to a bubble.

phillmv• 15 years ago

Sure, whatever. I think we're splitting hairs.

I think the overall point is that what we're currently engaged in isn't sustainable and the contraction is going to be painful when it hits in 6 months to a year once all the cheap money[0] dries up. There's a bubble within our asset class.

My question is: how does one short this phenomena?

[0] http://news.ycombinator.com/item?id=2363903

kirbman89• 15 years ago

Bubble Smubble. This bubble has a long ways to go before it pops. We're coming out of a recession! We have a few years left before we should be concerned.

jbooth• 15 years ago

So, at first everyone criticizes these guys for being on the wrong side of the chicken-egg problem, then everyone says they raised too much money and are being too ostentatious.

Seems like they're attacking the chicken-egg problem in the easiest way, to me, the domain name and big dollar shine on everything make them look more credible and established. And they have enough runway to focus on product for the first few years while growing the userbase without having to monetize immediately.

Could still flop a million ways, of course. It just seems like going all-in could actually be a viable way to attack emerging social networky markets.

antidaily• 15 years ago

41 million (and growing): The number of views for Rebecca Black's "Friday" video on YouTube: http://www.youtube.com/watch?v=CD2LRROpph0

jacques_chester3• 15 years ago

I would not have paid $1 to view it.

Tycho• 15 years ago

The previous bubble took 5 years to form and about 2 months to go 'pop'. I'm not sure if that timetable is trustworthy, but we definitely seem to be accelerating along the curve.

Just thinking aloud here, but how on earth would you make a trustworthy timetable out of that observation? What do you measure? Economy was size A in year Y2K, technological faciliation was a level B, there were C people involved directly with the market; now the economy is size X, tech is level Y, and Z people are at the table... like why would you think one previous bubble was in some way proportional to a present one?

One last thing, what to make of Max Andreeson's pet theory that there never was a real dotcom 'bubble' - that a few companies were ridiculously overvalued but overall most were ok and in fact more investment should have happened (in a more diversified manner)?

beeeph• 15 years ago

When a tech bubble pops, how does it affect a funded startup compared to a bootstrapped startup? I'm relatively new to the startup world, but as I understand it, startups that need funding are generally the only one's negatively affected when the bubble pops since funding becomes more scarce. If so, wouldn't that benefit the bootstrappers?

sdizdar• 15 years ago

Not sure if this particular investment can be called as a sign of a bubble. Social networks, locality, mobile, and things are still new and unknown. But there is a huge potential. There will be soon 2B people on the earth with constant (mobile) connection to the internet.

In order to make FourSquare clone, you don't need a lot of investment for development but you need a LOT of money to acquire users and become a player in that space.

However, the assumption is that there will be only few players and that is why there is a need for these kind of bold investment moves. I disagree. The system will become even more fragmented, democratized, and complex with many unknowns, so classical ways of getting market share will not work. In other words, even with 41M of investment, the company will not be able to fight against some weird and original apps / social network or even coupon buying system.

atrevisan• 15 years ago

Typically those kinds of things would happen once every year or so, twitter (I still don't fully grok their business model), facebook and so on.

Don't understand Twitter's business model? Promoted tweets have the ability to become AdWords for social. Millions of pieces of content are shared everyday giving insight into user's pleasures, dislikes, and lifestyle. This user data, when analyzed, has immense value for companies interested in purchasing. That information is worth a ton.

Bubble or no bubble, I sure grok their business model.

known• 15 years ago

Define bubble.

crux_• 15 years ago

I'm curious about a couple of things, but also ignorant... so here's hoping for a helpful reply:

- How much institutional money (pensions, sovereign wealth, etc) is ending up in VC?

(My intuition tells me that the tremendous pressure on these funds to generate returns, which was a huge part of the housing bubble, is in turn fueling this bubble too, although not nearly at the same scale.)

sabat2• 15 years ago

Anecdotal over-investment on the part of three VC companies != a bubble.

A bubble is a stock market bubble based on massive, irrational over-investment on the part of VCs and stock market investors which, after implosion, will hurt the US and world economy.

"Hey, those VCs are making some stupid investments" does not translate into an economic bubble. VCs frequently make stupid investments, because they're human and they're in the business of taking risks.

Please, I urge you to read a history of the actual stock market dot-com bubble of the late '90s so you understand the word "bubble" in context.

HeyLaughingBoy• 15 years ago

Who cares if we're in a bubble? The only thing that matters is "how can I make money from it?"

tutanosh• 15 years ago

There is a bubble in people calling a tech bubble, surely this cannot last!

davidmathers• 15 years ago

As the great philosopher Inigo Montoya once said: "You keep using that word..."

Let's talk about this chart for a second:

http://www.google.com//finance?chdnp=1&chdd=1&chds=1...

Ok, see that 4000% increase in 18 months? That's what a bubble looks like.

Now, please point out to me where on the graph it made more sense to invest your retirement money in the S&P 500 rather than Amazon.

Wait, you mean pets.com, not amazon.com? Fair enough. But now I'm not sure what your argument is. That color.com is going to fail and the investor are going to lose all their money?

That is what you're saying right? Because if you're saying they're taking a large risk that has a very small chance of paying off then you're saying nothing. That's what investors do. That's what makes us (as a society) all rich.

If your argument is that capital is being misallocated then you have to say why and where the capital should be allocated.

Which brings us to what is actually a bubble and not just people with lots of money taking big risks that may not pay off:

1. capital being invested by (otherwise) non-investors

2. who can't afford to lose

3. who have come to believe, with certainty, that they can't lose

That was the case in both the stock bubble and real estate bubble. It's not the case now. I guess the headline "valuations are unrealistically high" wouldn't generate as much heat and would require a coherent defense.

jeremymusighi• 15 years ago

Nice touch writing out the full "$41,000,000" rather than just "$41M". Definitely makes it look like more. Although I don't disagree that the size of the investment seems unjustified.

41,000,006 reasons why I think we're in a bubble

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