Always New Mistakes

January 7, 2008

Valuation snowball

Filed under: Business — Tags: , , , , , , , , — Alex Barrera @ 7:17 pm

Even though investors, entrepreneurs and industry leaders say the current technological bubble is different from the one in 1999, things are starting to get out of hand:

  • SugarCRM: Raises $14.5 Million
  • Ice.com: Raises $47 Milliondollars.jpg
  • Pudding Media: Raises $8 Million
  • Meraki Networks: Raises $20 Million
  • Affinity Labs: Acquired for $61 Million
  • Moniker: Acquired for $65 Million
  • Onaro: Acquired for $120 Million
  • Apertio: Acquired for $206.5 Million
  • XIV: Acquired for $350 Million

All those deals come from last week’s Techcrunch posts. I just did a quick search at TechCrunch’s archive from 2006 and I found some interesting statistics. Lets compare the ratio of deadpooled startups in 2006 versus deadpooled startups in 2007:

Deadepooled companies in 2006:

http://www.techcrunch.com/2006/01/10/searchfox-to-shut-down/ http://www.techcrunch.com/2006/05/04/want-to-buy-a-search-engine-2/ http://www.techcrunch.com/2006/06/15/myspace-nukes-singlestatus/
http://www.techcrunch.com/2006/06/20/myspace-feeds-the-deadpool-nukes-another-startup/ http://www.techcrunch.com/2006/06/29/couchsurfing-deletes-itself-shuts-down/ http://www.techcrunch.com/2006/08/16/ajax-calendar-kikocom-goes-on-ebay-offers-to-delete-accounts/
http://www.talkcrunch.com/2006/09/06/episode-11-elliot-noss-talks-about-kiko-acquisition/ http://www.techcrunch.com/2006/09/21/exclusive-zookoda-auction/ http://www.techcrunch.com/2006/10/04/audioblogger-joins-deadpool/
http://www.techcrunch.com/2006/10/16/livelocker-calls-it-quits-enters-deadpool/ http://www.techcrunch.com/2006/12/30/rawsugar-in-deadpool/

Total: 11

Deadepooled companies in 2007: See TechCrunch post.

Total:55

Granted that counting TechCrunch posts isn’t rocket science and that might not be the most accurate data source. Nevertheless, it’s quite interesting to see that the number of companies that went out of business this year is 4 times higher than in 2006. I haven’t counted the number of launches in 2006, but I guess the number is quite smaller than in 2007 (34 of them reported by TechCrunch).

The number of millions invested in tech companies also suffered an acute increment. In 2006 the investment ranged from $3 to $15 Millions with an average investment of $12.94 Million (all data taken from TechCrunch’s archive of 2006, and don’t reflect exact numbers at all but just a quick, probably biased, approximation).

A comparison with the investments I showed at the top (an average of $22.37 Million) makes my mind blow. In 2007 the number of investments, and the total amount of money per investment grew considerably (these approximated values don’t account for Facebook’s recent investments which would only rise the average).

What is the problem with this you might think? Well, not much at first. It’s great that so many companies are getting investments. It’s a good indicator of strong economical growth in the tech industry. The problem arises when companies start getting valued higher than they really are. It’s true that it’s very hard to valuate a company, specially a dot com company with millions of users but no revenues, but some of the acquisitions and investments are just crazy.

social-bubble.png

On one side it’s great news for all entrepreneurs like myself. It’s getting easier to get investment and it’s also easy to reach a good exit deal thanks to all the acquisitions we are seeing. On the other side, it’s a dangerous situation. I reckon we won’t experience a bubble burst as big as the one in 1999, but when this trend stops we’ll have to face hundreds of deadpooled companies and many VCs will lost big amounts of cash. As a side effect, hundreds or even thousands of engineers will be laid off. I don’t like apocalyptic visions, but I’m afraid there is way too much expectation and we will suffer this. As many economist know, the market will self regulate itself. Just watch and see!

Image credit: bigmouthmedia.com

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November 19, 2007

Breaking the Internet barrier

Filed under: Business — Tags: , , , — Alex Barrera @ 12:12 am

Some days ago I read this post and realized how much the media has changed in the last years. Not that I hadn’t noticed, but it suddenly struck me that we are changing our entertainment habits at an astonishing rate. How many of you still watch TV? I knHollywoodow for sure I don’t, and it’s been a while. It seems as if “offline” businesses are crumbling and letting space for the online businesses. What got me thinking was the idea of having online TV shows script writers displacing “offline” script writers. Is it a good idea? Will Hollywood bring unknown script writers from the Internet to fill in the writers on strike? On one side, this is a great idea. I’ve always thought that some worlds are way too endogamous, Hollywood is one of these. What is great about the Internet is that you don’t have to do expensive studies to see if something works, you just put it online and wait and see how users react to it. So now you don’t have to do castings, you just search the Internet and bring on board the writers of the best shows on the Internet, period. But, is this going to work? Even though the format is the same, the medium is quite different. That means that the audience is also different. So, if you bring good script writers to the TV, will they grab the same user share as on the Internet? I don’t think so.

Take a look at Fake Steve Jobs blog. I’m a great fan, I enjoy reading it. I think Daniel is an excellent writer, one of the best I’vefakestevejobs.jpg read in quite some time. His blog is followed by millions of readers. Recently he wrote a book titled Options: The Secret Life of Steve Jobs, a Parody (Haven’t read it yet but it’s on my Christmas list). I was amused by one of his latest posts: “Have you seen his book? It’s awful. I mean I’m a big fan of Colbert’s TV show and I know he hired a huge team of writers to work on the book for him but honestly, no kidding, this thing sucks ass. Nevertheless it’s a huge best-seller, while my own brilliant memoir … um, isn’t“. Let’s get some numbers, don’t we? Ok, FSJ’s book ranking in Amazon is, as of today, #1,894. Colbert’s book is #8. If we get back to our online world, according to Techmeme’s leaderboard, FSJ holds a quite nice #64 position on the world’s blog list (#53 if you look at Technorati). So, how can that be? If people follow FSJ’s blog on a daily basis, why don’t they all buy his book? Some might argue that if you read him online, you are going to read him offline, but in my opinion, we are quite different on our online/offline states. The same thing doesn’t *has* to work on both sides of the line. It might, but as we see, the numbers tell another story. In my case, I haven’t bought the book yet because I have few time. It’s faster to just read his blog (and many others). Might this be a common reason for other people?

Now, back to Hollywood and the Internet, it might work, some might work, but ultimately I do think the future is the other way round. That is, Hollywood script writers leaving the big studios to set their own Internet productions. Lets face it, currently it’s ridiculously cheap to produce an Internet show, just take a look at Scoble Show or Diggnation. I love them, but hey, they cost an infimun part of a TV show. So I wonder, why don’t the writers just make the leap and start writing their own shows? Why not take the path that their cousins at the music industry are taking? They could control their creative work and could make a hell lot more money. Times are changing, people like to watch their favorite shows on demand, not at a predefined hour like in the TV, so why don’t just produce shows exclusively for the Internet? Maybe I’m too futuristic about this, but looking back, I’m amazed at the speed things are changing (or it might be I’m getting old). If you don’t follow the people, you’ll be left behind.

As always, constructive critics, opinions and similar are welcome. What do people think about all this? Just for the record, I think the strike is something writers should have done much earlier. Keep up with it guys, and just make the final leap to the Internet, even though I’ll miss some shows! (this is the list of our favorite TV shows that are affected by the strike).

UPDATE: Seems like the Hollywood writers are really jumping to the startup arena.

Image credits: Craig Aurness/Corbis

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