The Bubble Year (?)

The 2011 Bubble

The 2011 Bubble ?

2011 was probably the first year the word “bubble” was mentioned so many times since 2000. Just as the year ends I think it is worthwhile to step back for a second and re-assess if we are headed for another bubble.

Short answer  – no.

Long answer: Probably not yet but that is thanks to macro economic conditions (high unemployment rate across the world, European countries at a default risk etc.) and investors who still recall the dotcom era. As we head into 2012, however, venture capitalist Paul Santinelli says we’ll see the end of that bubble, the end of easy money for companies with the supposed next killer app, and an end to “frothy” angel investments climate.

So why write about it?

If you compare the IPO landscape in the last 12 months with the IPO landscape back in the dotcom era your will find many concerning similarities.

March 9th, 2000:

–          378 technology companies went public, leading to a total market cap of $1.5 trillion over accumulated revenue of $40 billion.  87% of these 378 companies had never seen a profitable quarter by the time they went public.

–          Carsdirect.com raised $280M in a round C financing

–          1500 biotech companies we established out of Harvard, MIT, Stanford and other universities. 350 of them went public with only 10 to 15 of them expecting to be profitable by 2001.

–          3600 funding deals by the end of 1999.

–          800 incubators operated in the US (150 incubators operated in the UK).

December 22nd, 2000:

–          The market cap for these 378 companies was worth ~$375B. A 75% decline ! 130 companies actually closed their operations and 60,000 employees were fired from 600 companies.

December 22nd, 2011:

–          Zillow went public without a single profitable quarter, a $6.7M annual loss and, based on their S-1, a decent chance that they won’t be for a while. Similarly, HomeAway went public with a $6.6M quarterly loss. Groupon IPO’ed with an annual loss of over $400M. ServiceSource went public with a $1.1M net loss in Q2/11. Some of the other recent IPOs were also not profitable or marginally profitable before they IPO’ed.

–          DropBox raised $250M of round B at a $4B validation

–          By the end of the year somewhere between 3500 to 4000 funding deals are expected.

–          The estimated number of incubators in the US stands at 1500 !! My fellow European colleagues also mention a surge of incubators.

And finally some stats about the return of recent IPOs Year-to-date:

–          Zynga –  -60%

–          FriendFinder Networks (FFN) – -94%

–          Mission New Energy Limited (MNEL) – -94%

–          Sequans Communications S.A. (SQNS) – -77%

–          Renren (RENN) – -75%

–          Trunkbow International (TBOW) – -63%

–          Tudou Holdings (TUDO) – -62%

–          Demand Media (DMD) – -59%

A bubble burst or not ? I’ll let you decide.

Sources:

The worst-performing US IPOs” – Forbes December,28th 2011

“The Internet Bubble” – Anthony B. Perkins  and Michael C. Perkins

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About shanishoham

After 14 years of General Management and incubating/scaling new businesses & organizations for enterprises (established a $55M mobile business and a $100M/400 employees global division), I became an investor Today I’m a board member/mentor with 5 incubators & micro-VCs and involved with many other private & public incubators around the world. I also founded a VC firm named 2020 and I'm a member with a number of angel groups so i get to see & work with many startups, innovation centers and other parties across the ecosystem. I’m an alumnus of the Stanford Graduate School of business - Sloan Master in Management program, a 10 months intensive program for 57 carefully selected experienced Executives and leaders from all around the world.

One comment

  1. Sergei P.

    I think there are definite similarities between 2000 and 2011 if take into account the QUANTITATIVE nature of Internet connectivity: 2000 – the limits of fast growth was reached in US, and 2011 – the limits was reached in other countries.

    Today we are expecting the qualitative changes in Internet technologies (in Internet USABILITY). First of all – the passage from data management to information (knowledge) management with intellectual data packing and unpacking according to semantic meaning.

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