I am writing this in response to the Steve Blank’s article on the new tech bubble. Almost every day you read the news, whether it’s on TechCrunch, NYT, Mashable, or Venturebeat, you see stories of startups getting $1MM+ in funding. This leaves many to think that we are headed toward another tech bubble. I tend to look at this a little differently:
Financial Crisis: Not only did the most recent financial crisis erase a significant amount of wealth, but it also reduced the liquidity in public, private, and personal markets. Investors were no longer willing to invest in the stock market let alone start-ups. Instead, most investors took their losses and sat on the sidelines until the dust settled. During the crisis many investors, angels, and VCs built up large amounts of cash and liquidity as they took a wait and see approach to the economic re-stabilization. Over the last 8-12 months that dust is indeed settling and you are now seeing this capital enter the market. I don’t believe it is just a frivolous allocation by investors and VCs, instead, they are finding ways to put their money to work again.
Mobile/Pads: 3 years ago there was no App Store, Android or Blackberry marketplaces. The introduction of the iPhone and then the iPad changed the way we communicated and consumed content. However, the App Store changed everything. It literally created a new and innovative marketplace that never used to exist. It’s now a $2Bn+ marketplace that has generated a huge amount of opportunity for entrepreneurs. It created millionaires overnight and spawned a creative wave that changed the way we interact with content, brands, and how we used online services. You used to be able to reach millions of users over the internet but now with the iPhone you can expand that reach exponentially. Furthermore, it pushed competitors to react and release phones and tablets capable of competing with the iPhone and iPad and marketplaces that were on par with the App Store.
Barriers to Entry: This was also the case back in the 1999-2000 bubble, but today the barriers to entry are even lower. I am working on a start-up at the moment and we will be able to launch our beta for under $3000. The fact that companies can be formed and launched for under $100,000 today is remarkable. They wont all be successful, but the fact that I can wake up tomorrow and get out a product for a few thousand dollars is very enticing for entrepreneurs. Couple this with the funding that is available and you have the perfect match.
Job Market: The last point I wanted to make is related to the current level of unemployment. Millions of jobs were lost during the crisis and many of these are not going to be replaced. Ever. This has forced many people to seek alternative paths. I know several people who have formed companies because they cannot find a stable job and there are no longer attractive and abundant opportunities in the corporate world. Couple this with the creation of new markets (App Stores) and you have another perfect match!
It’s definitely going to be an interesting few years ahead for tech. What are your thoughts? If I missed anything drop them in the comments below.