Are we heading for a tech bubble in 2019?

Great article in the financial tomes today .... https://www.google.com.au/amp/s/amp.ft.com/content/43d5e972-2098-11e9-b2f7-97e4dbd3580d

Are we heading for another tech bubble with too much money chasing too few deals in the late stages of a credit cycle? 

The financial times has an interesting article written by Raba Foroohar warning that 2019 may hit financial reality, and that the sustainability of the current funding model, will be subject to some much-needed testing.

Some of the new crop of hyped-up companies may eventually turn into Cheshire cats, disappearing and leaving behind only the grins of those who got out before the bubble burst.

Back in the dot com crash - the then investors were counting on a spate of hot IPOs to pour a little more kerosene on markets that were clearly over-inflated. It didn’t end well!!

Today there are many unicorns with massive valuations like Uber, Lyft, Dropbox and Airbnb looking to list at massive valuations to enable venture cap funds to “cash out”. They tend to  lose money hand over fist, and yet still continue to grow in valuation. Indeed, it is all part of the new business dynamic. (Look at Amazon as a success story and role model) 

Are these private companies and Billion-dollar venture funds bloated ? Last year, Sequoia raised an $8bn seed fund, and SoftBank a whopping $100bn fund.

Big, of course, begets big. As more and more heavyweight VCs bid up the value of start-ups, others have to follow. It’s up or out. The result has been not only a new bubble in IPO markets, but the undercutting of a host of public companies that actually have to worry about profits. The classic examples would be Uber’s disruption of the taxi industry, or Airbnb’s of hotels.

Massive debt financing of unprofitable firms to create monopolies might benefit some entrepreneurs and investors, but does it distort capital and labour markets and is it anti-competitive?

As long as investors are willing to accept growth as a metric for value, the music can keep playing. 

University of California academics Martin Kenney and John Zysman put it in a forthcoming paper on the shifts in start-up funding, entitled “Unicorns, Cheshire Cats, and the New Dilemmas of Entrepreneurial Finance” - To become a unicorn - “start-ups are each trying to ignite the winner-take-all dynamics through rapid expansion characterised by breakneck and almost invariably money-losing growth, often with no discernible path to profitability”.

They are of the view that , “unicorns are mythical beasts”. 

rana.foroohar@ft.com

The power of leverage - why you matter

Below is a video of an experiment that demonstrates the power of small and the power of leverage.

No matter how small your idea, product or service  is - if it well positioned, and has the ability to “touch” the person around it, it has the potential to make a significant contribution to the planet! 

Some comments

A great example of causality. We are creators and should be mindful of our actions (or inactions) with self and others.

 Small acts of kindness and positivity in the office can snowball and spread in to similar things in the community and world! Love this visualization and working with each of you!

That's why you should not be afraid to speak up when you know you have something important to say. Wise words from the Dalai Lama states "if you think you're too small to make a difference try sleeping with a mosquito". Another fantastic truth from Gandhi states "be the change you want to see in the world". If you think small of yourself and act on it then that will form the basis of your reality unless you break out of that mentality and stand tall, speak up without fear, trust yourself and be that change you want to see out there no matter what. You are part of the 7 billion, you're not just a statistic. These are some of my principles. What are yours?

And that is a good representation of life.  If one doesn't follow one's self, making choices that are different than others, one must deal with the seemingly ever increasing set of challenges.  If one decides to be themselves and be something different, than the change ripples through society.  A most wonderful post!

Typically, the seemingly small, humble people in life typically have the biggest impact.  “Why”?  Usually because they are focused on selflessly doing good things for others and not aggrandizing themselves. 

Dave Parker’s checklist before taking the plunge into a startup

If you’re thinking about leaving your day job and launching a new company in 2019, do David Parker’s Rubric Test 

The rubric scores you on these ten criteria, using a 1-to-4 score: 1 = bad, 2 = not good, 3 = good, 4 = great!

• Team (Domain experts; diversity; serially-successful founders; from great companies; functionally competent)
• Idea (Big “category” idea; early/late continuum; technically achievable; “pain pill or vitamin”; in investors’ “investment thesis”)
• Product (Customer-first focus; clear value proposition; design/ease of use; clear launch and scale offering)
• Market/Customer (How big is the market – TAM/SOM; unmet customer need; how many incumbents; nascent go-to-market system)
• Competition (Barriers to entry; differentiation; well-funded competitors in Crunchbase)
• Business model/Finance (High transactional value; clear profit model; capital efficient; scalable; no “bad” things on cap table)
• Traction (Customer adoption; customer engagement; early revenue; know the unit economics)
• Timing (Emerging innovation; “meta” factors are favorable — industry/market tailwinds vs. headwinds; established demand)
• Intellectual Property (IP required or does the market require IP?; IP in process; how will you build a moat over time?)
• Clear Ask (Do you want advice, capital, introductions, staff?)

How did you score? If you have some “4’s” — congrats! If you scored low in some categories, you know what questions you should answer before you make the leap.

Here are some tips to improve your scores:

• Team: Don’t have a co-founder yet? A lot of investors see that as your first “sales” if you can’t get someone to join you on the journey. You won’t be able to get one for free — it will cost equity or cash comp. If you don’t want to give up anything, you’ll likely be in the same spot on Dec. 31, 2019.
• Market: If you don’t have a big market, you won’t attract investment. It could still be a great business, but not the “venture scale” that investors will look for as an outcome. A low number here might just be due to how you describe the market. Don’t take for granted that the investor knows the market as well as you do!
• Traction: Remember if you don’t have revenue or customers yet, you should have at least interviewed 50-to-100 prospects for feedback. If you have data from those interviews that validates your opinion, it will help. It’s not revenue, but is validation.

Finally, remember that all business models have three components you’ll need to unpack for an investor:

• Creating Value: This is the product or service that you provide to your customer. There is a cost to build the product or deliver the service. This is development, hosting and support costs, if it’s a tech product.
• Deliver Value: This is how you market and sell your product. There is a cost of selling the product. These are the unit economics involved with the sale of the product.
• Capture Value: This is your ability to create margin and profit. Investors will want to know how they get their investment out of the company as well. If the profit is reasonable, you won’t attract a lot of interest. If your profit is exceptional, investors will be interested

All of these costs go into the spreadsheet and investors will want to know that you have a hypothesis on all of the costs, not just the cost to build the product. Having a product that no one knows about means it will be difficult to sell.

Take some time to answer key questions in advance and you won’t be surprised when you get to the investor meeting. 

Compressing the time from launch to revenue is the goal. You won’t need as long of a personal runway or to raise as much capital if you’re prepared.