Tech Bubble? Why It’s Different This Time
Are we currently in a tech start-up bubble?
It's a fascinating question and, to be sure, opinions among learned folks run the gamut. Those in the affirmative look at Facebook's billion-dollar acquisition of Instagram as Exhibit A. That much money for a company with zero revenue, much less profits? Call it dot-com 2.0. This evokes images of pets.com and other ill-fated startups.
Naysayers point to the fact that technology costs have dropped by several orders of magnitude, thus dramatically reducing the amount of capital required by startups. Count Marc Andreessen among those who believe that all of this bubble talk is overblown. And there are those who fall somewhere in the middle.
Who knows the definitive answer to the lofty and unprovable bubble question? Certainly not me. But—as someone who lived through the Internet boom of the late 1990s, I can tell you that something is fundamentally different this time: the proliferation of viable funding platforms. These platforms can effectively tap the resources of John and Jane Q. Public. In other words, no longer do start-ups have to rely upon angel investors and venture capital firms to raise money. Funding has been democratized.
While Kickstarter is currently the 800-lb. gorilla, other funding platforms have broken through. This begs the question: Do any of these new sites actually work? The answer is a resounding yes, especially in light of Kickstarter's massively successful Pebble Watch. I know something about Kickstarter, having successfully funded my fourth book, The Age of the Platform, on it. (I didn't raise anywhere near $8 million, though. Dare to dream, right?)
Examining the Pebble Watch
What if a VC firm gave Pebble founder Eric Migicovsky $8 million for a crazy idea of a smart watch? Kind of bubbly, right? Well, consider that the nearly 53,000 backers of his project (as of this writing) haven't given Pebble anything. Rather, they've bought a product–before it's actually been produced. (And, in case you're wondering, Migicovsky told Bloomberg West that he has since received more than a few calls from VC firms since his project went viral, many of whom probably wouldn't have given him the time of day three months ago.)
What's more, sites like Kickstarter are becoming metaplatforms: platforms that spawn other platforms. Case in point: Pebble recently announced that Runkeeper will be the first app for its watch.
In theory at least, the JOBS Act makes it easier for new businesses to start and flourish. One could argue that nascent funding platforms may produce companies without legitimate business models and revenue streams. Is there such a thing as the wisdom of the crowd? Perhaps.
Funding platforms may add to—or detract from—a potential bubble. We just don't know yet. We do know, however, that the game has changed, and possibly forever. Angel investors and VCs are no longer the only gatekeepers, the arbiters of which companies receive funds and which do not. Through emerging platforms, the floodgates have been opened.