The Second Internet Bubble

As said in my last blog, Facebook's current on-paper value is somewhere between the value of Ford ($55bn) and Visa ($63bn) two major companies that have been arround for quit a while. Google's value nowadays is even more than three times bigger.

The new generation of internet companies are booming, in fact according to some the second Internet Bubble has began. According to Patrick (co-founder of technology consultancy Broadsight) the first breaths have been blown. "A bubble is defined by too much money chasing assets, greater production of those assets, then the need to find  greater fool to buy them." The small group of companies chasing money right now can be good investments but it must not escalate.  Patrick gives 10 signs that this new Internet Bubble is being blown:

1. The arrival of a 'new thing' that cannot be valued in the old way. Dumb-money companies start paying ove the odds for New Thing acquisitions.
2. Smart people identify the start of a bubble; New Thing apostles make ever more glowing claims
3. Startups with founders deemed to have 'pedigree' (for example, former employees of New Thing Companies) get funded at eye-watering valuations for next to no reason.
4. There is a flurry of new investment funds catering for startups
5. Companies start getting funded 'off the slide deck' (purely on the basis of their Powerpoint presentations)
6. MBAs leave banks to start up firms.
7. the 'big flotation' happens
8. Banks make a market in the New Thing, investing pension money.
9. Taxi drivers start giving you advice on what stock to buy
10. A New Thing darling buys an old-world company for stupid money.

Social media is hot and happening, 'the likes' of twitter and facebook are revolutionary in human communication. These companies aren't making money but are worth a fortune! Michael Errington, creator of Techcrunch (an influental technology blog) and Arianna Huffington (founder of Huffington Post) have sold their publications to AOL. #1

Fred Wilson (Investor at Unionn Square Ventures and a veteran of the 2000 dotcombubble) is ringing the alarm bells for quit some time now, he is worried that a two- or three-person startup could get a $50-$100 valuation which he finds not reasonable.  #2

He also stated that for example Quora (Questions-and-answers site) raised $11m last year that valued the firm at $86m, now it is reportedly fending off offers for $330m!  #3

David Cohen (managing director of TechStars) says there is a bubble in the number of companies financing startups.  #4

Sumon Sadhu (director of intelligence at Quid) disagrees, he states that social media created a new source of information about the people using the web, these identities are just worth a fortune. The first wave of internet firms gave us an overload of information, now we need the filters. We have to trust where the information is coming from.

There is a sense that this isn't real money, and that can't be good in the long run. The sad thing is that we only really know if this was a bubble when it bursts..

source: the Guardian