Bubblicious – Warning, Entrepreneurs! Social media valuation bubble distorts the entire market

Color raises $41M in a series A round with no revenue.  Twitter is valued at $7.7B with $45M  revenue (171 times revenue) in 2010. Facebook is now valued at $65B up 30% over 6 weeks relative to the valuation when Goldman Sachs invested.  Hiring a couple of hot software engineers today is Silicon Valley is the equivalent of the Red Sox signing Adrian Gonzalez and Carl Crawford. Another Internet Bubble: that’s what it looks like to me. The difference this time is that the companies have revenue and might be profitable when they are valued at crazy high valuations.  The predicted IPOs of Groupon and Facebook will be for revenue-generating and profitable companies. Google has proven that high valuations can be sustained. However, a bubble — is still a bubble. Can a photo sharing site that hasn’t launched really need or justify $41M? Facebook was reported to have a trailing price to earning (P/E) ratio of 125 @ a $50B valuation.  Today it … Continue reading →

Is first to market really a good strategy ?

Looking at the recent crazy high  $15B  (yes billion) valuation of two year old Groupon got me thinking about why? What did Groupon do correctly? Are they winning because they were first to market with group online discounts ? I don’t think so; Town Hog and Living Social were both founded earlier. I can think of many variants of online couponing companies that have come and gone over the years .  What Groupon has done really right and continues to do really right is make a massive investment in outselling and out hustling their competition. OK raise your hands, how many of you have written, spoken, read or heard the words: “We will dominate the markets we enter by being first to market”. I have written this phrase into a few business plans and have heard it many times from entrepreneurs. Googles nifty word frequency analysis tool shows that “first to market” increased in usage 400% in the last decade peaking … Continue reading →