Are We Blowing Another Bubble?

Last Thursday, we stopped by the Automattic Lounge at Pier 38 in San Francisco to hear a panel of venture capitalists and Silicon Valley entrepreneurs answer the question—are we blowing another bubble? Moderated by VentureBeat’s Owen Thomas, discussion began by asking how to spot signs of a bubble. Panelists included Paul Martino, chairman of Aggregate Knowledge; Christine Herron of First Round Capital; Corey Reese, CEO of Trumpet Technologies; and Tim Chang of Norwest Venture Partners.

Sign of a bubble:
• Big rush of capital into any particular market, whether or not market can absorb that capital
• More jobs or resumes floating around
• Look at valuation of jobs market: people getting lots of job offers versus a more challenging market
• Software developer who’s never done programming taking programming jobs
• Look for broadness of activities rather than deepness
• Grandma asking about tech stocks
• Cheese sommelier serving personally sliced fine cheese at corporate events (note: there was no cheese sommelier at the Automattic Lounge)

Discussion turned to analyzing why recently there are a few big deals that are getting disproportionate attention. Zynga and Foursquare, for example, have received high valuations and buzz while other startups are struggling to get initial funding. Paul Martino commented that there are a few big deals grabbing a huge mindshare but that this is just a perceptual difference. Corey Reese and Christine Herron both attributed this to repeat entrepreneurs getting more attention. Statistically, past history is the only predictive factor of a successful entrepreneur, so people track these entrepreneurs closely expecting big results. Tim Chang mused that “Silicon Valley is like high school forever.” The hot startups get chased by everybody, making it more difficult for up-and-coming entrepreneurs to get seed funding. Martino went on to say Silicon Valley is a winner-takes-all environment which creates a segmented world.

Tips for new entrepreneurs (besides building a track record of success):
• Build a company that can turn a profit quickly and create a bidding war
• Focus on an area that venture capitalists are currently favoring

Are we in a bubble? The general conclusion of the panel was no.

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