Population Statistic: Read. React. Repeat.
Wednesday, October 17, 2021

Silly money is once again pouring into Silicon Valley startups, which signals the onset of Dot-Com Bubble 2.0, to be followed by Dot-Com Burst 2.0.

Or not. Because this time around, the inflated valuations are coming — and indeed, being solicited — from a different source:

The greed bubble collapsed like a Ponzi scheme. It turned out that these companies had spent all the money they raised on Super Bowl ads, robotic warehouses, and gleaming offices to hold hundreds of people. Yet there just wasn’t enough money to pay the bills, especially since the biggest source of revenue for many Internet companies was advertising from dot-coms that had just raised a round of venture capital or gone public. Most of these companies were so overextended they couldn’t adjust to the new reality: The Internet may change everything, but it takes a while.

The fear bubble has a completely different dynamic. The main drama revolves around the slowing growth of the winners of the last round — Yahoo, eBay, AOL, Microsoft. They are mainly worried about how Google is sucking up all the consumer attention and advertising money. They also worry that some little start-up will turn into the next Google.

So out of fear, these companies are trying to regain their youthful growth through acquisitions — lots of little companies like Flickr and some big ones like Skype and Avenue A.

That’s a somewhat convoluted way of saying that the merger and acquisitions market is creating the value of the average Web 2.0 startup. The stock market plays more of a secondary role, in the fluctuations of established companies’ share prices; therefore, initial public offerings don’t come into play.

Which, actually, is nothing new. As far back as 2005, it was recognized that the new start-up strategy wasn’t to achieve an IPO and stake out territory as a going concern. Rather, the idea was to position the company as a rapid-growth niche player, to the point where one (or, ideally, more) of the existing Web giants would take notice and come knocking with a buyout offer.

Presumably, this latter-day Buyout Bubble will pop as soon as the stock market starts penalizing the Googles and Yahoos for writing multi-million dollar checks for, essentially, phantom companies. That means relying on the wisdom of the financial crowds — a dicey proposition if I ever heard one.

by Costa Tsiokos, Wed 10/17/2007 11:29:56 PM
Category: Business, Internet
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    So far this year, there’’s been little action on the initial public offering market for Web/tech companies, and it’’s bugging the heck out of venture capitalists, who claim that that’’s bad for the overall economy:

    Entrepreneurs are optimistic by na…

    Trackback by Population Statistic — 04/12/2021 @ 02:18:55 PM

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