Another Bubble

There is lots of talk about a new bubble forming...countless blog posts and discussions over the past year which I won't revisit. 

The latest theory is that the DST investment in Facebook in 2009 was the Netscape moment of the Web 2.0 era, which means this year might be like 1997 (two years after the Netscape IPO and another 3 years before a crash).

The thing about bubbles is that no one knows for sure. That's why we have bubbles...and pops.

Assuming we are headed into another bubble, some people are giving advice. They say that you should act differently during this bubble.

They will say "it's different this time" - an addressable Internet market of a BILLION people, cloud computing, mobile computing, titanic shifts in ad dollars, unprecedented growth in real revenues and profits, etc. 

To be or not to be lean?

The lean start-up movement has been terrific. Following the crash of the Internet bubble, a new generation of lean entrepreneurs, building capital efficient companies, was born.

But now people are confused. They are again debating the benefits of going fat vs. staying lean. Even some leading proponents of lean are advising entrepreneurs to behave differently (see Steve Blank's post on "new rules for the new bubble").

The problem is that changing your behavior with the times could a recipe for disaster. It is not honest either - certainly, not genuine or authentic.

Strive to do something which might stand the test of time. Do something which will last beyond the next bubble (and the inevitable crash).

Don't worry so much about what others are doing. Let them raise lots of money and spend it on PR or advertising. Why worry about things you can't control? Focus on what YOU need to do.

This will be hard to do. The behavior of everyone around you will change. You will feel new pressures from all around, even from very smart people and trusted advisors.

Here is an example - pressure to raise more money than you need. One of our portfolio companies was approached by prominent investors who wanted to "get in." They tried flattery (a very high valuation). Then they tried a threat (they may invest in a direct competitor rumored to be raising more than $100 million).

Try to resist such pressures. Resist temptation; and above all, resist envy. It is the most insidious of sins. Envy feasts on bubbles even more than greed or fear (of missing out). 

Don't fret about timing. People who try to time it get it wrong. They invest when things get hot. They pull back when things look bleak (i.e. buy high and sell low, even though they were trying to do the exact opposite thing).

Trying to take advantage of the greater fool, means, by definition, that you are a fool. That said, I do have some advice.

If you are going to sell your company, this is a pretty good time to do it. Valuations are high, buyers have cash, they are hungry and they are moving quickly.

If you need to raise money, now is a good time to raise it - equity or debt - the terms are favorable. But remember to be careful when taking advantage of this environment. The time to be cautious is when everyone else is bullish. 

The next few years will be very interesting...