Tag Archives: tech bubble

One Reason Startups Fail

Come on, people! At least try to make your apps more than punch lines for blogs like mine. Just days after posting about the shakeout among mediocre consumer technology companies, I see a review of three apps designed to help you split the bill with friends/roommates: Billr, SplitWise and OpnTab. As regular readers know, I think that any company with a name like Billr is destined to fail. When it’s an app that does nothing you can’t do with a calculator (which is built into your phone), then its chances of success are even lower. In addition, despite the savage failure of Blippy, the app that shared with your social graph the details of all your purchases, here we have the launch of Mine, which shares with your social graph the details of all your purchases. Venture-backed technology is at its best when it solves big problems. Three apps that help you divide by seven are not solving problems at all.

Silicon Valley Shakeout: Yes, Many Startups Fail

The press is going crazy here in Silicon Valley with pieces about the coming shakeout in startups. The basic story is that over the past few years, the growth in angel investors led to a lot of mediocre ideas getting seed funding, and now that the froth is off the market, those mediocrities are finding it difficult to raise additional money from venture capitalists.

PandoDaily gives a good summary here. Dan Lyons, a well known tech journalist (and creator of Fake Steve Jobs), has a more savage take here. The following quote kind of summarizes his piece:

For the past few years we’ve had people calling themselves “investors,” who have no experience investing, swanning around the Valley, slinging money at people calling themselves “entrepreneurs” who have never held an actual job, let alone run a company.

My view is that this shouldn’t surprise anyone. The current social/mobile bubble has been obviously following the trajectory of the 1999-2000 dot.com bubble (see my prior posts on this topic here, here, here and here), and any rational observer could see how it was going to end. Just like a decade ago, the promise of quick riches drew hordes of young, aggressive tech wannabes who launched me-too companies, features posing as companies, or simply bad ideas. And just like a decade ago, huge amounts of capital desperate to be put to work meant that bad ideas got funded. But bad ideas become bad companies, and bad companies start to fail, and VCs don’t put more money into failing companies.

Ten years ago, the mantra was “let’s dot.com category X.” Now it’s “let’s take category X social. Or mobile. Or both.” But either way, good ideas with good execution get traction, and bad ideas don’t. PandoDaily looks at the travel space and explores it as a microcosm of everything that’s happening. Bad companies with bad names ( Dopplr, Tripl, Gtrot) are all going away, because they never should have existed.

This is really a standard Silicon Valley cycle; it’s just getting worse. There was once a time when VCs funded one hundred disk drive companies, which also ended poorly. Now it’s that the cycles are stronger and draw more wannabes from further away. More press and more billionaires mean more people coming to enter the lottery. I mean, now we have a reality TV show about good-looking young entrepreneurs (or perhaps I should say “entrepreneurs,” since the folks on that show are exactly the people Dan Lyons savaged). Back in the 1980’s nobody made a reality TV show about 45 year old engineers starting disk drive companies.

More Tech Bubble Datapoints

Here are two more items showing that Silicon Valley is in the midst of another startup bubble:

  1. TaskRabbit, which has A) a dumb name; B) a terrible premise; C) the ridiculous idea that it won’t need to staff up in order to grow (because it has a terribly inexperienced CEO); and D) NO REAL BUSINESS MODEL.
  2. A WSJ article about how PR firms are now turning down clients and taking equity in lieu of cash compensation. Since the main value of PR firms is hiring cute young women who flirt with male reporters to ensure that their clients get press coverage, any time PR firms start feeling as powerful as VC funds (like they did in 1999), you know that you’re in a bubble.
  3. San Francisco apartment rents are skyrocketing, to the point that local real estate people are calling it a bubble.

More on the Tech Bubble

One day, two NY Times articles bolstering the bubble hypothesis.

One explicitly describes the bubbly behavior of investing $41 million in photo-sharing startup Color before it even launched its product.

The other describes how some Wall Street broker-dealers with no experience in technology are throwing money at shares in hot private companies. Fast-money Wall Streeters are one step above the shoe shine boy when it comes to bubble indicators.