The AppsLab

Here We Go Again, But Is It Bad?

By Jake • March 24th, 2011 • 6 Comments

I’ve been biting my tongue for several hours now, hoping the cynicism with abate.

It didn’t. Haters gonna hate.

Color Looks To Reinvent Social Interaction With Its Mobile Photo App (And $41 Million In Funding)

That $41 million was committed pre-launch. Here’s another in the same vein:

Pretty Flipboard Fundraising at an Even Prettier $200 Million Valuation

I know the Bubble 2.0 talk has been circulating for years, since before Facebook passed MySpace, since before Twitter existed, since startups began dropping vowels. Many rational people would point to the fact that a micro-blogging service or a social network of friends got funding at all as evidence of VC insanity, but bear with me.

I’ve talked about found business models before, but lately, a lot of funding has been thrown at known business models like “do better advertising” or “sell it to businesses” with shaky execution plans.

Let’s be honest though. This isn’t my money, so why would I care?

I lived through the end of the last Bubble, right in the middle of it, failing at a few startups. I missed the salad days, thanks to a geographical detour, so my memories are definitely biased.

One thing I learned that hasn’t changed is that Silicon Valley startups are exactly like cults; there’s an easy formula. You start with a known leader, e.g. ex-Googler, early employee at Facebook, co-founded some startup people know.

This leader then recruits a couple known rockstar developers (again, known for their work at other known startups), and then you work on an idea.

I know a lot of these startups begin at gatherings where people share their mutual desire to collaborate on something. The something doesn’t always come first, but developers all have a ton of itches to scratch. Ideas are a dime a dozen, whereas good people are not.

Then, you recruit more people and VC based on name value first, idea second.

VCs don’t often invest in unknown founders. Likewise, talented people want to work with names.

Very much like a cult.

Two things that had been different from the late 90s until recently were lower valuations and smaller rounds of funding.

These are related to the slimming down of startups made possible by web services and virtualization and by the rise of smartphone app development. Lower infrastructure costs led to smaller rounds.

Plus, unlike the 90s, there is no more big money poured into salaries. Many of the big name people who lived through the first Bubble actually have money and work for fun. Plus, early in the millenium, VCs were more gun shy, making leaner startups look more attractive.

Problem is that many developers are not motivated by money; they’re motivated by reputation and a sense of achievement. So even though many startups pay well below what a talented developer can earn at an established company, the lure of rockstar recognition and being an integral part of a successful startup can be very alluring.

Anyway, back to the point, large rounds have reemerged, largely due to comparisons to large valuations for companies like Facebook and Twitter.

I think it’s safe to say the bubble has returned.

Again, is this bad?

I’d say yes. It’s not good for the overall economy to point to an artificially bolstered sector as signs of a recovery. If that sector were pumping money into other sectors via disposable income or other spending, maybe, but mostly, startups don’t do that.

Specifically related to tech, again, I’d have to say yes. Another Bubble means another example proving the way to fame in development is to start a company, get VC, make it to a liquidity event, then GTFO. If not that path, then it’s the way of burning through VC money, while not getting paid and dying on the vine.

The shame here is what’s left when the startup either dies or grows too large for the founders to care anymore.

Many of the cult members are left wondering what happened to the high-minded idea the leaders used to recruit them.

No one wants to build enduring value anymore. It’s not sexy, and it’s too hard. It’s a shame that another wave of developers will see this as the path to take, and this doesn’t apply only to Silicon Valley.  Thanks to The Social Network, we now have Justin Timberlake telling everyone that startups have to be in the Valley.

I find that sad, all of it, not just that last bit.

Find the comments.

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