In my May 2015 BLOG post, I wrote, “Prior to the combined dot.com and telecom busts, it was indeed the best of times until greed and poor execution made it the worst of times for the telecom sector.” Such behavior today is less likely with increased scrutiny by startups’ largest investors.
Besides, any correction as a result of a bursting tech bubble today will be less disastrous for the overall markets than the most recent one. Nascent startups are avoiding irrational exuberance and are remaining private for longer periods of time. This is because, as Mims points out, the “big investors are willing to hand them money despite the fact their having not yet gone through the baptism by fire that is an initial public offering, which includes scrutiny from the Securities and Exchange Commission, sell-side analysts and the financial press.” Such a delay in going public allows startups to move closer to generating cash and/or becoming profitable.
Indeed, if a startup doesn’t own anything, especially inventory, and hires contractors to do the work instead of employees, a very lean operation can be had. This is attractive to investors looking for a big return on their dollar in an era where returns are harder and harder to come by.
Investors today include large equity funds worth trillions of dollars. They rarely put more than 2 percent of their assets into private deals. Even if a startup fails, Mims points out, it “could affect some financiers’ bonuses, but it would hardly affect the wider economy—which in this scenario is probably reeling from some other macroeconomic shock, anyway.”
I previously wrote, in my March 2015 BLOG post, “Could this be a more benevolent Silicon Valley in 2015? Time will tell.”
We have another 6 months to find out.