Tech Crunch, May 24, 2015
Editor’s note: Manish Goyal is the senior manager and Bharat Ramnani is head of business of valuation and advisory services at Aranca.
MUMBAI: Do we have a ticking time bomb on hand? The debate over whether Silicon Valley is sitting on another tech bubble rages on. It is being fueled by many celebrated “unicorns” that have attracted billions of investor dollars at sky-high valuations without demonstrating the returns.
These unicorns are fast becoming the new normal in the VC space. CB Insights states that over 103 startups in the U.S. have bagged over a $1 billion valuation right now. Most of them are not even remotely close to making any profit. The race to find the next Facebook is driving many on the Sand Hill Road to write outrageous checks for unsubstantiated concepts. Metrics like operating margins, break-even points and future cash flows seem to have taken a backseat.
Some of the passionate bulls have already labeled doomsayers as disgruntled wannabes who do not understand tech investing. But not Mark Cuban, one of the renowned moguls in the VC world. Voicing concerns, Cuban, in a widely discussed and debated blog post, claims that this bubble may just be much worse than ever. Many find his assertion extreme, but not without conceding that even if there is a bubble, it seems quite different from the 2000 dot-com one.
So, who’d get hit the most eventually? Our readings suggest that, quite unlike the popular notion, VCs may not suffer that much. Rather, the biggest losers may be the employees and, perhaps, even the founders.