Tech bubble

Why the Tech Bubble Just Might Run Out of Air 


A startup industry whose assets are so inflated that they seem to be formed literally out of thin air, tech investment seems if anything – wobbly and uncertain.

Investors are pouring money into a promisingly successful industry, what is the ROI? 

Most tech startups fail. Judging which startups will succeed is quite tricky – investors take big risks throwing their eggs in a fresh basket, per say. Why?

Banking on their knowledge area:

Many venture capitalists have made money in tech before, sometimes through a tech startup of their own. Because of this, they have a knack for navigating their knowledge area of the startup industry and sorting possible future successes from failures.

Big losses – but enormous wins:

Gambling in tech may be risky, but it also brings big wins.  In tech you can go from nothing to a $2-billion outcome in four years. 

A case of poor revenue isn’t the end of the world:

Investors are focusing on the market shares rather than earnings of the companies that they’re investing in: it’s liquidation preferences that benefit investors in the end. 

Snapchat. WhatsApp. Instagram. Tumblr. Pinterest. All have been sold or valued at over $1 billion.  – their revenues don’t match. 

Clearly, VC may not be the ones to suffer as much as the business starters themselves, especially considering the startups that seem to be bringing in absolutely no revenue

Ello, the social network that has promised it will not show ads, just got $5.5 million in venture funding even though its founders have promised in writing to never sell ads or user data

Compensation rates are putting pressure on the bubble: 

Engineers sky high salaries is in some cases said to even be the cause of the bubble . By 2013, San Mateo county tech workers’ salaries reached $291,497.  Startup tech companies’ burn rates are reaching the multimillion mark, monthly. 

To prevent a bubble from popping, tech industry startups need to stand up straight from their heavy lean on premature promises – at least until they can be sure of their own prosperous futures. 

At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way.