The debate over a Silicon Valley startup bubble continues to rage. Mark Cuban said the euphoria is contained to the Valley. Now, I caught up with another active Super Entrepreneur and Angel Ben Smith to get his insights …
Ben, the bubble debate is back in style. You are an active investor on both coasts. Do you think there’s a bubble brewing in startup land?
A bubble implies an implosion at some point. I think we are all wondering if it is “1997 or 1999” in the cycle and if there will be a pop of a bubble with exits. Having said that, there is a dramatic increase in the valuations being achieved with early traction in Silicon Valley companies. This is not a bad thing if the teams can accomplish a lot on small amounts of funding, but raising $2M on a $20M convertible cap is problematic for returns.
Ben, in your experience, what percentage of these companies will actually live up to the early valuations? If it’s so cheap to start these businesses, doesn’t that guarantee more competition at a faster clip than previous cycles?
As always, and maybe even more so now with the competition for attention and distribution, there will be a bimodal distribution on returns; meaning, the winners will win big the others will not. There are 20 picture sites that will never see an Instagram exit.
In the short term, of course, even those non winners will probably see an exit that returns capital because of the value of the small teams these assets build. Unfortunately, this will not lost long.
While capital is available and the amount of capital needed is low, talent who can actually make it work is rare. It is a lot easier to raise capital today than it is to have the capabilities on your team to win. Capital will not define the winners, talent will.
Ben T. Smith, IV is a serial entrepreneur, investor, and advisor to technology and media companies. He the co-founder of MerchantCircle.com and Spoke.com, a former partner at A.T. Kearney, and currently the CEO at ShopCo.