March 24th, 2011

Posted by: Travis | 4 Comments »

If you haven’t heard by now Sequoia Capital and other VCs have pumped $41 million dollars into a Series A equity and debt funding round for Color Labs Inc. This incredible bit of fund raising has lead to an internet wide, WTF? Hacker News is bustling with people screaming about how we’re now in the midst of a new Dot-com Bubble. People are pointing fingers at the likes of VentureHacks, Y-Combinator, AngelList and others for, once again, marching everyone blindly towards doom. (David Hansson’s Tweets on this have been quite entertaining, BTW)

But are we really in a Bubble?

Jacques Mattheij gave his 6 hallmarks of a tech bubble:

• high valuations without corresponding track records
• an increase in the number of deals
• lots of hype, media frenzy
• turnover and profits no longer matter
• the prices of ‘subject’ domains going through the roof
• everybody trying to get in on the action

Based upon that, I would absolutely agree that we’re in a bubble. However, the move by Sequoia might be smarter than we all think. I think that David Hansson touched upon Sequoia’s playbook:

The incestuous ponzi nature of what's going on is hilarious. Sequoia has money in FB. Puts money in Color. FB buys Color in 9 months #win!

Whether or not this is a move to back something that can be brought into Facebook’s fold, I’m hesitant to say that we’re absolutely in a bubble. The backlash against news of this investment seems more like the bursting of pent up frustration. Not a day goes by that we learn about the next big thing and the next big thing is starting to sound  a lot like everything else. This is where I think the fear and frustration is starting to come from.

Chris Yea had an interesting point on the double-edged sword that many startups can be in his recent post:

10,000 startups working on 10,000 different ideas is wonderful for innovation. 10,000 startups working on the same idea–not so much.

The piling on that we’re seeing with certain innovations (local, mobile, social, coupon) is certainly dangerous. This doesn’t mean that we’re not seeing some great innovation happening. Take a look at FluidInfo, GreenGoose and Zaarly for example. Even if we are in one, this bubble will be much smaller than the previous. Remember, the money this time around is mostly coming from Venture Capitalists, real people’s money isn’t tied up in these companies – yet. Remain wary though and stick to a basic screenwriting rule:

Get in late, get out early