Wendy Tan White, founder and CEO of Moonfruit.com,
explains why, unlike the dotcom bubble of the late nineties, this
time round the huge valuations of tech firms are justified. Or, at
the very least, this bubble is made of sturdier
The news that LinkedIn's market cap has increased to over
$8bn has raised alarm bells regarding overvalued tech companies.
With the likes of Groupon reaching an estimated worth of $15bn,
there are concerns that we're in an all too familiar tech bubble.
These skyrocketing values echo those of a decade ago, when the
investments of non-tech-savvy investors shot up to create
My view is this: firstly, I don't believe LinkedIn is
overvalued. There are products in the pipeline that can crystalise
more value from the LinkedIn customer base and increase
As to whether we're in a tech bubble, a bubble starts when
valuations of certain businesses start to diverge from the
underlying true market trend. This happened in 1999 when crazy
valuations were happening for companies with no revenue! It's
different this time around as companies have real revenues. Groupon is only two years old
and is already generating $1bn plus in turnover.
I think it's too early to confirm if there is a bubble, but
there are secondary indicators that give me the impression of the
early stages of one. For example, the valuations of companies at
the early angel investor stages, the valuations on the secondary
markets of Facebook and Twitter, and the planned IPOs of
these companies, could all point to the makings of a tech
Once Facebook's IPO is
announced - ostensibly later next year - this will fuel investment
by non-tech savvy investors, who will plut their cash into less
successful companies at over-inflated valuations. And a bandwagon
People point to the Facebook IPO as being the
equivalent of the Netscape float in 1995. But remember, the peak of
that bubble didn't happen until the end of 2000. We've learnt a lot
from this cycle and the market information that wasn't available
last time. I think Facebook's coming IPO will
accelerate the cycle, and potentially bring about a peak of
investment in the next two to three years.
We experienced the first bubble raising VC investment in 1999,
and just scraped through the dotcom crash when many didn't. This
time we have real accelerating revenues and are attracting
investment for the right reasons - raising $2.25m series A
investment in September 2010, and funding from silicon valley-based
500Startups in March
2011. As such, small and medium businesses are paying for our
simple, intuitive, design led website builder in droves.
I'm constantly watching to see what part of the cycle we're in
and how that affects Moonfruit's business. But the
first priority will always be to run and accelerate a sustainable
business, and think about the market valuation second.
more about Moonfruit
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