Since last Fall, at the Web 2.0 conference, or maybe even last spring, the "new bubble" meme has been gathering momentum among digerati. Like night following day, it has been followed by the "bad time to do a start-up" meme, captured best by these two posts.
I more or less agree with everything Caterina Fake writes in her post, and the list David Hornik posts is frightening even though it doesn't even begin to capture all of the start-up activity out there.
So, why the headline? Because I think there is a counter-intuitive argument to be made that the tail of an expanding bubble oftent provides a great environment for disciplined entrepreneurs and start-ups, and I think the tail-end of this mini-bubble is six to twelve months away.
There are two points to make here. First, take a look at the list Hornik provides. In addition to the length of the list, what is most stunning is that, if you look deeply at many of these companies, many are trying to do the exact same thing, chasing after a very small number of opportunities, and solving just a few significant consumer problems. Most of them have not through their business models or strategies. And, in many instances, they are going after the exact same audiences — there is an amazing amount of activity concentrated around the under-24 segment right now, for example.
So ironically, despite the super-abundance of start-ups, there remains a decent amount of "white space" — i.e., entrepreneurial opportunities to solve real, significant problems for real people. Disciplined entrepreneurs will find and discover this white-space, stay focused, and learn to treat this incessant buzz of activitity as the white noise it is. And, they can be confident that 90% of these lemming-like start-ups will fail and run out of money in the next 12 to 24 months, and the list probably won't be as extensive in two years time as it is now. Remember the difference between, say, January 2000 and July 2001?
(As an aside, there is an interesting sociological post to be written about why this is so. I think it's basically because alpha geek culture, in many respects, can be monolithic and lemming-like during bubble-periods like this one. Many of the folks doing these start-ups read the same blogs, talk to the same small group of people, go to the same conferences, and get consumed with a limited set of problems. Blogging and services like Flickr give us the ability to watch and document all this from the comfort of our couches).
The second point is one I make with less confidence, with just some anecdotal recollection from the last bubble/boom for support, but which I think is true and that others could support with more detailed evidence. And that is that the height or tail end of a bubble is a great time to get financing. The valuations are better, the entrepeneur can raise more money with less dilution, and potentially have more in the bank to get through the dire times — which will come again with certainty.
While it was certainly a great time to start a company in 2001-2003 — there was such a dearth of activity, and doing just about anything was interesting — it was hard to raise money, and nearly impossible to do so with advantageous valuations.
So this coming period seems to me to offer, potentially, the best of both worlds. It's a pretty decent time to try to raise money, it seems, and there are plenty of interesting opportunities out there. This happened in the last bubble period. Google is clearly exhibit A for this during the last boom — it raised a bunch of cash at a decent valuation at the height of the bubble, focused on an idea that was deeply out of favor with the reigning digerati at the time, stayed focused, survived the bust with their cash, and we all know what happened after that. While Google was certainly the most spectacular example of this, I can, as I sit here typing, think of at least half a dozen other similar outcomes.
