Many Silicon Valley veterans remember when the dot-com bubble popped in 2000, and dozens of startups and mid-size tech companies imploded. Even those firms built on a solid business model, such as Amazon, teetered on the verge of total collapse.
In the years leading up to that epic “Pop,” investors and venture capitalists poured millions of dollars into the bank accounts of seemingly any startup with a “.com” after its name and a business plan that touched the Web in some way.
Fourteen years later, it sometimes seems as if many of the conditions that resulted in the 2000 tech bubble are on the rise again. Startups with amorphous plans for revenue have raked in millions of dollars from venture capitalists; there’s an accelerated pace of mergers and acquisitions among tech companies; and a few people think a correction is on the way, if not a full-blown crash.
“I think that Silicon Valley as a whole, or that the venture-capital community or startup community, is taking on an excessive amount of risk right now—unprecedented since ’99,” investor Bill Gurley told The Wall Street Journal in a widely circulated Sept. 15 interview (paywall).
Other venture capitalists echoed his remarks. “I agree with his premise,” Jeff Clavier of SoftTech VC also told the Journal. “It feels like venture investors are deploying their capital much faster than ever. When people don’t want to miss out, a lot of mistakes are made. Clearly we will see a lot of companies that raised $50 million or $100 million just blow up because they raised on momentum and not on success.”
Other tech investors—the kind who plow hundreds of thousands or even millions of dollars into early-stage startups, in hope of big rewards a few years down the road—suggested to the Journal that a crash or correction is possible within the next few years, although the nature of their business leaves most of them with little choice but to continue on their current path. “We all see the unprecedented level of demand and opportunity among more than 1.5 billion global smartphone users and say, ‘We can’t afford not to invest in these amazing companies,’” Jeff Richards of GCV Capital told the newspaper.
Meanwhile, Valleywag posted an email purportedly from Google Ventures advisor Wesley Chan, suggesting a dip could come sooner than other investors think: “You’re likely going to see investors pulling back at everything in between in the next 9 months or so, as the correction… will likely start playing out then.”
Whether an “adjustment” is in the works seems to be anyone’s guess, but for the moment, the good times are rolling for many tech companies in search of funding.
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