The End of the Startup Economy

In spite of there being a swell of record money that is flowing into venture capital, the funding for startups is all but dried up. When we think back to the dot-com bubble bursting in the early 2000’s, we think that we have learned something, that we would never be so foolish as to put insane valuations on products which bear no money making way. We though that this time around with the big new tech market we would avoid certain failures and be responsible with the role it played on the larger US economy. We thought all these things and though we finally had the means to create a more sustainable and prosperous tech economy that was not prone to crash. Then SnapChat got a Billion dollar valuation and all bets were off. er

It is here where we realize where we have gone astray we realize that we stand atop a pyramid made of glass, and it is only a matter of time before it all comes crashing down on our poorly constructed framework. The problem is, is that we are in to deep, and the only thing we can hope for now, is that it is a slow burn and does not ignite all at once and dismantle everything. This is indicative of a larger market trend. 

In the dot-com crash the Nasdaq composite index fell 37% in the 10 weeks filling its peak on March 10, 2000. Keith Rabois who was someone working all to close to this said, “startup investment has cooled. Valuations are falling, but many investors are entrepreneurs haven’t grasped the new reality.” Essentially the wheels are already in motion for this puppy to burst.

ubWhen asked about the present state of investment. he added that, “one of the reasons people are raising all these funds isn’t because they want the money, but because they believe their own metrics are inflated at the moment, and they want to get that money before companies in their portfolios start crashing and burning.”

To put this in perspective there are at the very least 145 private companies that have won the valuation lottery in exceeding 1 billion dollars. As venture investment went into them faster and faster, in the recent years, the executives at many of those companies spent a lot to out grow any competition they may have had in an attempt to bolster recurring for other companies or poaching their talent.

The biggest problem child we can see in all of this is going to be Uber Technologies hands down. They are valued at a whopping $62.5 billion. And the company claims that it is profitable by in the North American markets, but is spending huge sums of money to capture new markets in China and else where. The only problem is, they are spending way more than a profitable country would.

As of April 18, 2016, we were within 5% of its post 2000 high. which if we look at this like a thermometer of sorts we can see that the pot is ready to boil over. The only question that remains is where will you be when it finally does.


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