The signs are all here: There’s now an incubator on every corner, even your uncle is donning angel wings, and IPO expectations for Facebook are exceeding the hype for a new Twilight movie. But that’s all circumstantial evidence. What we needed was some public testimony to really put everyone in the right frame of mind.
Enter our trusted troubadour of bullshit, TechCrunch:
My best guess is that it is about to get crazy. And, only fools sit on the sidelines. Many strong and older entrepreneurs that I know are wealthy today because they made intelligent decisions during the dot-com bubble of the late ’90s. Success was not easy then, and it will not be easy now, either. But, the likelihood of a great outcome is much higher in a boom.
There are a lot of newly minted entrepreneurs that pursue their dream company in a halfhearted way. You may tinker with your idea while toiling at a day job. You may refuse to put in the work required to recruit the best talent. You might be afraid of launching an imperfect product. Or, you may put a mediocre effort into fundraising.
Let me translate: Dude, you’re going to miss riding this bull onto the bubble if you do not get on it RIGHT. FUCKING. NOW! Didn’t you see that someone just made A BILLION DOLLARS? Why wasn’t that you, lazy schmuck? Don’t answer that—there’s no time to look at the past, just quit your job, and come out here to the Valley post-haste. Sand Hill road just scored a fresh load of loot.
Now I get the basic psychology. Someone just won the billion dollar startup powerball and now everyone wants to make sure they bought a ticket for the next drawing. And why not? While the past season of tech IPOs has been full of duds, we still have the big baller Facebook coming up for a shot. And if red 32 hasn’t hit for the last few IPOs, it’s bound to do for this round. COME ON LUCKY 32!!!
But let’s calm down. Sooner or later, the market is going to sort these things out, and all will be right as rain. That’s evident with the Groupon fiasco. They’ve restated their accounting numbers endlessly and the stock has finally tanked. At the end of the day, the rules of accounting will blow through all the smoke and the mirror will show a face with no make-up.
Are you calm? Good. Now get ready to rage right back up. The new JOBS Act that was just passed with the help of a thousand VCs stomping it down the throat of Congress undoes all that. Matt Taibbi from Rolling Stones reports:
Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind passage of this law) attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.
The law also rolls back rules designed to prevent bank analysts from talking up a stock just to win business, a practice that was so pervasive in the tech-boom years as to be almost industry standard.
Now isn’t that swell. Enable people with an extreme financial incentive to spin the truth, or outright lie about the numbers, a 5-year get-out-of-jail cover, and what are you going to get? JOBS, silly! Duh!
Buckle your seat belt, Dorothy, ‘cause Kansas is going bye bye.
Erik
on 12 Apr 12Awesome post!
Chuck
on 12 Apr 12No idea the JOBS act did that. That’s horrifying.
Jeremy Nicoll
on 12 Apr 12Goes to show you what happens you expect government to make wise businesses decisions for you…
Bertrand Chardon
on 12 Apr 12Each generation will make the same mistake, thinking that because it happened before they’ll know how to maneuver.
Funny.
JF
on 12 Apr 12DHH, you’re just jealous.
Henway
on 12 Apr 12Great post, but let’s leave Steve Jobs out of this.
Timothy O'Reilly (not related!)
on 12 Apr 12@dhh I agree there is a bubble and that a lot of money will be lost by investors – especially Angel investors when the cycle turns. But is it all bad? Doesn’t some great stuff come out of bubbles for society?
Example: Post 90’s dot-bust, that left us with excess optical fiber that upped the bandwidth and reduced the price of transferring packets fast.
Example: Amazon that was the poster child for “crazy” valuations and dot.com era bubble talk; and that now is one of the most innovative and important companies in tech, publishing and e-commerce.
But to your central theme that there is a bubble and to your recurring theme that developers have a much higher probability of making good money for themselves without investors; who can disagree.
Raphael Scartezini
on 12 Apr 12That is all true. Amazing how people can forget the past so fast!
brian p o'rourke
on 12 Apr 12Yesterday we got ‘software quality theater’ – today we get ‘trusted troubadour of bullshit’. You are on a roll, sir.
GeeIWonder
on 12 Apr 12It’s a tradeoff measure to promote investment in the short term.
You’re quite right that there are some worrying things here, but the feeling seems to be if we can keep/get the engine running, additional oversight can follow.
Also, the existing rules basically allowed most of this stuff (just for people with more expensive lawyers and accountants) anyways through e.g. reverse takeovers.
Evening the playing field to provide more nimble capital movement to emerging and more efficient industries at home (the whole reason we have a market) seems a priority, when compared with alternative investment forms (insurance, real estate, and the big banks). It’s a very imperfect solution to a very big problem.
Not to be snarky, but as a sincere question: how’s the situation in Spain these days for people who recently bought villas and/or moved their money?
Joshua Hoover
on 12 Apr 12Now isn’t that swell. Enable people with an extreme financial incentive to spin the truth, or outright lie about the numbers, a 5-year get-out-of-jail cover, and what are you going to get? JOBS, silly! Duh!
I agree with much of this post but let me ask this, for all the regulation that Sarbanes-Oxley brought after Enron imploded, how much did it prevent corruption from occurring later on? There is only so much doubling down with regulation and writing more laws is going to get you.
That said, remember in October of 2008 when Sequoia and other VCs were announcing the end of the world? Rinse and repeat.
Stephen
on 12 Apr 12Great post.
@Timothy
Great things can come out of bubbles, but you also have to look at the unseen. What great things could have been built had we not squandered our resources in a bubble?
Emmet
on 12 Apr 12Yes I’m sure he is jealous, but he’s also very very right about this. We may or may not be in a bubble yet, but the conditions certainly are in place for one to develop (ie irrational exuberance).
Alex
on 12 Apr 12JOBS Act or no, financial regulations or no, there’s always going to be insanity during times of a bubble, when people get involved just to flip stuff, rather than to generate actual value. It’s not like the people who were buying Groupon stock when it was $26 a share (it’s now $14) were under the mistaken impression that it was a profitable company, for instance.
Emmet
on 12 Apr 12@Timothy
Not to detract from your original point, but while Amazon may be an important company, their valuation has yet to come into equilibrium with their earnings. PE ratio of 140!?
Khalid Abuhakmeh
on 12 Apr 12This post made me laugh out loud, until I realized that when bubbles burst it tends to get really bad.
The five year accounting loop hole is insane.
I have this company that makes a billion dollars a day, I didn’t write down the accounting anywhere, but trust me you’ll want to buy some stock in it. #sarcasm
Dr. Otto van Otto
on 12 Apr 12Wait a second, doesn’t Jason Fried sit on some board at Groupon?
VG
on 12 Apr 12David, aren’t/weren’t you on Groupon’s board?
condor
on 12 Apr 12@DHH, why are you player hating? Everyone’s just trying to get theirs. I know I’m trying to get as rich as I can before the roof falls in, what’s wrong with pushing a few pillars over on the way out?
Jack Smith
on 12 Apr 12While it might not make business sense, in markets like this perhaps it is best to ride the bull and not fight against it. Aim to be a Mark Cuban + recognize it for what it is + exit as soon as possible, then go do something that actually provides value
Dan Bowen
on 12 Apr 12DHH the jobs act will do one thing for sure, keep the lawyers in their Jobs. Reporting requirements aside, this is a recipe for lawsuits left, right and center and the 500,000 POS apps cluttering the mobile space are proof positive there are no shortage of people lining up to get their heads taken off.
We always laud the lottery winner while forgetting the hundreds of millions who pissed their money away…that said, for those building true value and true utility for users longterm, there is arguably no better time to get started…but we didn’t need bubble two, electric boogaloo for that to be an accurate statement. We just need the tech writers to write objectively and quit hyping every promise of the day with 1M users, uniques, or revenue but zero opportunity to be anything other than a burn rate.
I assure you I can build a hockey stick of users if you give me the ability to give $5 to every user who gives me $1.
Let the games begin…
Doug
on 12 Apr 12What is wrong with telling people to stop being wantaprenuers and start working on their start-up? If a company needs funding, having a good market for the funding is not a bad thing. The article describes me pretty well, lots of ideas, no real business yet. The opportunities are indeed slipping by every day. David, are you advocating do nothing? Or just keep the day job and pay for the new BaseCamp. Buy the book but don’t start? No matter how bubbly things get, if a company does not build real value they don’t last.
The JOBS act is getting press, but it is not so easy to get funding. Listen to the discussion of the JOBS act about 27 minutes in. http://www.thisweekinstartups.com/blog/naval-ravikant-of-angellist-244.html There are a whole lot of limitations, so the impact, if any will not be felt for months or years. We’re talking about the government, nothing moves fast.
Anonymous Coward
on 12 Apr 12DHH is slowly starting to win me over with all this ball fondling discussion. Keep it up!
Anonymous Coward
on 12 Apr 12@Stephen: You nailed it. One of the biggest errors people make is ignoring the unseen.
Riley Dallas
on 12 Apr 12Great post. Always refreshing when someone calls this mania for what it is – a bubble. Consider the startups that have already gone public:
Groupon – Negative Profits, Under SEC investigation Yelp – Negative Profits Pandora – Negative Profits Angie’s List – Negative Profits Tesla – Negative Profits Zynga – Negative Profits BazaarVoice – Negative Profits LinkedIn – profitable, but trading 850x earnings!
This bubble has some legs, and the JOBS bill is going to make it worse.
Giles Bowkett
on 12 Apr 12Fully agree. This shit could get really silly, really fast.
Peter Urban
on 12 Apr 12I am on a bull!
(... I’d love for David to do a ‘bull’ homage video to the Old Spice commercial http://www.youtube.com/watch?v=owGykVbfgUE )
Matt
on 12 Apr 12Fuck it, I’m tired of fighting it. I’m gonna get my hands on a few million, convert it all to gold and go fucking hide out on an island for the rest of my days.
Scott
on 12 Apr 12I continue to be flabbergasted at how much and how broad support the JOBs Act had. The JOBs Act benefits only those who have something to hide.
chrisv
on 12 Apr 12Great post – clear point of view. I like the translation of the quote.
@Stephen not tired of running after “what could have been”? Somehow senseless to discuss “what, if…”, don’t you think?
Craig LaValle
on 12 Apr 12“attract capital by, among other things, exempting them from independent accounting requirements for up to five years “
Oh Lordy. That is a half truth at best.
If a company raises $100,000 or more through crowdfunding they must provide reviewed financials. $500,000 or more they must be audited.
This is the minimum required by the law /so far/. A Commission is deciding right now what other rules they want to put in place.
Oh, and that is on top of disclosing their tax returns and the requirements laid out by the required crowdfunding intermediaries that these companies will have to make their offerings through.
This bill does not eliminate financial reporting, it just makes it slightly less stringent, depending on a companies size, and a heck of a lot cheaper.
John
on 12 Apr 12Love it, nice post DHH!
Tommy
on 12 Apr 12It’d be better if the government had NOTHING AT ALL to do with how people invest their money, and let investors demand accurate accounting. If you want to sell stock to the public, you should prove to the public that its a good deal, or stay broke when there is no demand for shares in your company -not lie to the public and scam away their money.
lisa
on 13 Apr 12Don’t you get it I don’t need makeup on, its just all to boring. Same it dfferent day..blah..bubbles have been not poping 4 3 ys fellas. :) dammthejobact..not….
Jason Waldrip
on 13 Apr 12I disagree with what you are saying about the JOBS act. I think it is going to be a huge opportunity for entrepreneurs. But its not up to the government to hold these companies accountable. Its up to the people building these crowdfunding sites. We need to make sure that as techies we do our job to hold these startups accountable. Kickstarter has had much success and zero fraud, just no equity. The JOBS act just allows people to do the same for the piece of the pie. I believe that with a social element, there will be less fraud here than there is in the larger markets.
Ruby on Rails development
on 13 Apr 12Enjoyed your style of writing and I agree that it is important to consider what happens when the bubble bursts.
EH
on 13 Apr 12Money gets its own definition of truth enshrined into US law.
Paul Brian
on 15 Apr 12Agree with the general theme that we’re in a boom here but have to laugh that you quoted Rolling Stone as your source of legislative investigation. There is validity to what @Craig LaValle said above, you need to dig deeper below the surface.
There is space for speculative stocks in the market. Hedge Funds have offered investors quick windfall opportunities however it would be extremely unwise to place all your eggs in that basket. An 80/20 (solid stocks v speculative stocks) approach, if you can afford it, could net you a great return whilst not ‘gambling’ your life savings away.
I think the most important thing for tech entrepreneurs in any market is to execute on your strategy, i.e. build something! You can then focus on the best avenue forward from there.
viaggi vietnam
on 16 Apr 12Well, actually, I’m trying your methods. Hope it can work. Phim
FranG
on 16 Apr 12The Matrix quotes were a nice touch. Most of the tech world is definitely in a goddamned dream world.
Chris
on 16 Apr 12So… this is good? ;-)
Karthik
on 17 Apr 12Policy making of this sort is often short sighted and the unintended (or considered minor) consequences end up wrecking havoc. The housing bubble began in the Clinton era as a policy initiative of increasing home ownership. That germ of an idea mushroomed over time into a speculative bubble that cost trillions of dollars.
In this particular instance, It is perhaps best to err on the side of caution instead of relaxing rules. Quality in all forms takes money and time. Why should startups not have to “prove” themselves by going through the same paces as the rest of the viable companies.
Efficiency arguments that it might just be cheaper and the present processes are onerous/stringent enough don’t make sense when the lay public is expected to invest as well. Well, if the current processes aren’t efficient, the company shouldn’t go IPO then. They can have all the efficiency and freedom they want with private capital and the risk and rewards are both theirs to bear.
Some have suggested that there is a need for speculative stocks. This is True. However, everybody ought to have the same quality of information. If standards (for accounting/analyst recommendations) are weakened, then it is no longer a fair game. Sure, once in a while you could bet and win big but that isn’t investment, that is just out right gambling.
GeeIWonder
on 17 Apr 12This seems not to mesh well with what the existing process actually is.
Weakened? Are you somehow suggesting that it’s a fair game as things stand? Are you kidding?
If anything, just on the principle of moving capital out and around of the hands of the CDS centres is probably a good thing. It also goes a long way to mitigating frozen credit. It also promotes the creation of US jobs in the short term in a value-added industry that the US has a legitimate chance of a future of leadership in. It also mitigates education issues which are rampant right now (and the effects of which we will see within 10 yrs) and provides one of very few ladders a bunch of people can still get on.
If ethanol and farming are a national security issue, surely IT is as well.
This discussion is closed.