Tekedia Intelligence has concluded its study on the triggers and enablers of tech bubble. Our data shows that the industry is headed for a bubble. But it will take three years for it to mature. There will not be any tech bubble until after 2014 especially in the United States.
Last few weeks, we reported that the industry is healthy because the big players are choosing well. They are investing in very healthy and strong companies and jacking up the valuations of those companies. In that report, we quoted the Economist thus:
But trouble may be brewing out of sight: although 80% of publicly-listed tech companies are trading within their historical valuation ranges and recent IPOs are few in number, valuations in the private market are skyrocketing too. There is a lot of hype surrounding the upcoming IPOs of high-profile Internet companies such as Facebook (which is valued at around US$76bn, more than Boeing or Ford), Zynga, a virtual gaming company valued at around US$9bn, and Groupon, which sells online coupons to its subscribers and is valued at around US$15bn-20bn. By contrast, Twitter, a highly popular social-networking site also tipped for an IPO in the near future, is valued at around US$7.7bn, although it has yet to find a profitable business model.
Immediately, we commissioned our own study using our economists who looked at some numbers in the US. We looked at the recent data available in AOL Tech Crunchbase. In other words, we wanted to know what people were raising in new startups. Our data is surprising. Raising funds have become easier even for the smallest and simplest idea in Silicon Valley.
A start-up company called Color – that makes apps so that people can share photos without logging in got
$41 million. The product was so bad that the bad comments exceeded the good ones. Yes, investors are looking for the next Facebook and why not spread money around? They are putting money in any idea that flies across them. This is a very bad sign in making. More on Color later today as we have a post on it.
The arrival of LinkedIn in the stock exchange was a wake up sign in the tech world. It traded in the three digits before it cooled. That euphoria was a sign of non-fact based exuberance and that is a sign of bubble. Pandora is holding up since it launched, but Tekedia things those companies are not receiving good analytical valuations. They are over priced because they trade many multiples than their revenues. Though Skype got billions more than its 2010 revenue, Microsoft is such a healthy beast for us to worry. The investors are those that will crack the market and not the behemoths like Microsoft.
So, these are our numbers which do not look good and some happenings in the industry:
– The Russian Yandex raised $1.3 b at its IPO. This is a search engine for Russia and it leads the market there. But recall that Russia is a risky place to do business because of government controls. Yet, investors hoping to catch the next Google put that money
-U.S. is now the place for foreign companies to raise tech funds. In U.S., they like technology. Contrast with Nigeria where all tech companies lag the market. Chams is a junk stock, the same goes for Omatek and many other technology firms in the Nigerian Stock Exchange.
– In 2010 U.S. exchange, aggregating all the IPOs, 32% were American companies, China provided 21%, UK 9% and Germany 6%.
The valuations are beyond reason for some. Most of these companies have no revenue model. The numbers we picked from some legacy companies in the Second Market confirms our fears.
SecondMarket is an SEC-regulated alternative trading system, registered broker dealer and member of FINRA, MSRB and SIPC. SecondMarket has brought significant market structure to these asset classes, and in the process, improved liquidity for sellers and enhanced opportunities for investors.
The numbers in SecondMarket is troubling. People are hedging their fortune on the likes of Facebook, Zynga,etc without caution. Yet, these ones are healthy and will survive the crash. The worries are the small fringes that receive millions.
Of course, there are still good deals in the market. Blackberry acquisition of Scoreloop is a good one. Scoreloop is a German gaming company. Price was not disclosed but insiders noted that it was tens of millions for a company with no major revenue.
The complete report, :The Tech Bubble Is Brooding, from Tekedia will be released when we finish the formatting in PDF. It will come as a PDF document and available free on our site. But remember that in 1998, the ramp up to the Tech Bubble , we had 19% of all IPOs to be tech and 17% foreign. Today, it is 32% and 39% foreign. Either Americans are not creating enough companies to go public or that people have figured that American tech investors are not getting the valuations rights, we will help you answer those questions.
This is Tekedia – we have a foundation of having won a 2010 “Book of the Year” when our founder edited a groundbreaking book that shaped the future narratives of nanotechnology and microelectronics. We have that tradition and you will like this report on tech bubble.