Twitter has been valued at $8 to $10 billion. Twitter hasn't opened their books, they've only promised investors that they are making money. Does this seem crazy to anyone else, especially considering that only 8-10% of the American population, depending on who you ask, are actually signed up for Twitter, with a far fewer percentage actually creating content with frequency?
Then, news breaks today that Color, a mobile photosharing app started by the creator of LaLa, received $41 million in seed money from investing groups Sequoia and Bain Capital. This is an app that not only produces no revenue, but just launched yesterday. So there's that.
That being said, there are several reasons why this bubble is dramatically different than that which happened in the late nineties:
- These investments are being made by private funds rather than individual investors.
In the late nineties, everyone who was anyone rushed to get an IPO valuation of as high as possible to get on the gold rush that was the dot-com investment boom. And, of course, the banks were happy to facilitate such transactions. However, this time, with the banking industry on its heels and public investors generally more wary than usual, seed money is being granted to start-ups by venture capital firms and private equity funds, thus limiting the systemic risk of a collapse.
- These investments are in the tens, not hundreds, of millions of dollars.
- The market is still relatively new.
I'm not ready to start ringing alarm bells yet. However, it is somewhat distressing to see this much money poured into what are essentially beta tests with no model for revenue generation. Fueling growth and innovation is one thing; placing unjustified bets just to make a name for oneself in the marketplace (cough, Bain, cough) is another.
-Taylor
africa to new york, haiti then I detour, oakland out to auckland, gaza strip to detroit