The tech bubble that never burst

The tech bubble that never burst

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The venture capitalists are sounding the alarm.

At posh conferences, they buzz about falling valuations for start-ups. On CNBC, they bemoan the sudden lack of initial public offerings. On Twitter, they warn of a coming downturn.

It is a familiar refrain. For the past decade, such warnings have cropped up repeatedly in start-up land. The industry is in another bubble, investors and commentators caution, conjuring the 1999 dot-com era and the dramatic collapse and recession that followed. Jobs disappeared, fortunes vaporized, and reputations were tarnished.

The message since has carried those scars: The boom times are ending. Buckle in for a rough ride.

Yet every time, more money has flooded into start-ups. Instead of a collapse, things got bubblier.

U.S. venture capital funding by month

It started in 2011, when a tiny, elite group of start-ups attained “unicorn” status, with valuations of $1 billion or more.

Investors poured billions into start-ups each month; and hyped-up initial public offerings from LinkedIn, Pandora, Zynga and Groupon fueled fears of a bubble.

Lise Buyer

Founder of Class V Group

“Yes, we have a frenzy again.”

The warnings didn’t stick. Investors pumped $45 billion into U.S. start-ups that year.

Facebook went public in May 2012 with the largest-ever tech I.P.O. in the United States. Many viewed its valuation — more than $100 billion for a start-up with less than $4 billion in revenue — as a sign that tech valuations had ballooned out of control.

Is the Facebook I.P.O. the Start of Another Tech Bubble?

Facebook I.P.O.: Worth the Price or Next Internet Bubble?

The bubble they had warned of never burst.

Web Start-Ups: The Dot-Com Bubble All Over Again?

Things sure felt bubbly. Engineers were demanding Tesla sports cars just for showing up to work, Business Insider presented as evidence.

If It Looks Like a Bubble and Floats Like a Bubble…

By 2014, the number of unicorns around the world topped 90.

Marc Andreessen

Venture capitalist

“Many high burn rate co’s will VAPORIZE. … Worry.”

Venture Capitalist Sounds Alarm on Start-Up Investing

Start-up investing rewards risk taking. Many of the most audacious, irrational investors have won by doubling down in a market frenzy. The cautious ones, trifling over such small-minded concerns as high prices or cash burn? Less so.

Suddenly Uber — a little taxi app — was worth $51 billion. More than American Airlines or FedEx, which actually turned profits. Investors blasted the alarm even louder.

Bill Gurley

Venture capitalist

“You’ll see some dead unicorns this year.”

Mark Cuban


The warnings were not all wrong — a few unicorns did perish. (Remember and Jawbone?)

But for every flameout, there were many more new ideas to back. New sources of capital — including private equity, mutual funds and sovereign wealth funds — began chasing unicorn investments. In May 2016, they poured $14.2 billion into more than 800 deals, the highest amount of the decade so far.

Keith Rabois

Venture capitalist

“We’re more back in the fear mode than the greed mode.”

Jim Breyer

Venture capitalist

There is “blood in the water”; 90 percent of unicorns will be repriced or die.

Just in case the warnings were right, some investors lowered the valuations of their biggest investments, briefly cooling the unicorn frenzy. There was talk of onerous funding terms and start-up layoffs.

The Top Unicorns Are Overvalued

Then Masayoshi Son arrived.

Masayoshi Son

Softbank chief executive

“We only live once, so I want to think big. I have no intention of making small bets.”

The brazen investor dumped $100 billion into Silicon Valley start-ups — dwarfing the rest of the venture capital market — at a pace that averaged $100 million a day. Reuters called him a “one-man bubble maker.” Executives joked nervously about Mr. Son’s “capital cannon.” Venture capital firms raised bigger funds to keep up.





High valuations and obscene spending became the norm. Start-ups prized growth over profits. Investors gave up on their bubble talk. Fear went out the window. Everyone decided to enjoy the party.

Yes. It’s a Bubble. So What?

Investors Have Never Cared Less Whether an I.P.O. Makes Money

Venture funding soared, topping $26.9 billion in December and hitting a new yearly high of $143 billion. The unicorn count jumped to 348, according to PitchBook.

Loss-Making Tech Companies Are Floating Like It’s 1999

In the lead-up to its I.P.O., WeWork imploded. It was the kind of spectacular, embarrassing, humbling disaster that many thought would have ripple effects for years to come.

In boardrooms, investors murmured that this was really, truly, finally the end. On conference stages, start-up founders promised to “pivot to profits.”

Then the pandemic hit. Prepare for tough times ahead, venture firms declared. For real this time.

That lasted barely a few weeks. Start-ups flourished in the pandemic and funding soared to new heights. I.P.O.s roared back. So, naturally, did the bubble talk.

Eric Paley

Venture capitalist

“The party is as loud and the drinks are flowing as freely as the dot-com boom, despite that we’re all drinking at home and alone.”

Rich Steinberg

Market strategist

More than 500 start-ups around the world topped $1 billion valuations. Those in the U.S. raised $164 billion in 2020, setting yet another record.

Meme stocks! Crypto! NFTs! SPACs! The Federal Reserve was printing money, interest rates were low, vaccines were available, and the world was set to reopen. By 2021, economists began predicting a new Roaring Twenties led by tech prosperity.

Yeah, it’s probably a bubble, investors shrugged. But YOLO, amirite?

‘This Feels Like 1999’: Global Start-Up Funding Frenzy Fuels Fears of a Bubble

This year, fear crept in again, as interest rates were set to rise, inflation surged, and war broke out. Soon, tech stocks tanked. Initial public offerings screeched to a halt. Start-up investments fell.

A sense of caution returned. Was the bubble finally, really, truly bursting?

Today’s warnings are different from those of the last decade. Investors tiptoe around the word “bubble,” referring instead to a “recalibration,” a “pullback” or even a gentle “softening.” The people who once called for caution grew tired of being wrong, and their audiences became numb to the warnings. Every time the alarm bells rang, more money poured into start-ups.

“This time is different” used to be a morbid joke among investors; now people believe it. Tech is too enmeshed in our lives, the thinking goes, and the dot-com bubble is too far in the rear view. This decade-long start-up boom has surged in the face of so many scares, each time amassing even more money and power. Maybe it really is different this time.

Some investors believe market euphorias are a good — even necessary — thing for progress. Without all that attention and excitement, how can a start-up founder convince workers and investors to help turn their crazy moonshot ideas into reality? Sure, most of the people who flock to a bubble are in it for the money. And yes, things can get messy. But underneath, it’s all moving forward. Out of the dot-com ashes, techies like to remind us, grew Amazon, PayPal and eBay.

Even as the biggest factor driving investors to high-growth start-ups over the last decade — low interest rates — begin to change, even as economists worry about an impending recession and even as start-ups lower their valuations or suddenly run out of cash, few today are predicting a total collapse.

A decade of talking about a bubble that never burst will do that.

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