14 ms·

41,000,006 reasons why I think we're in a bubble

369 points by revorad 16y ago

dclaysmith 16y ago
"A $41M investment at this stage in the life cycle of a business is normally associated with either something that is technologically complex and thus capital intensive or that requires new processes to be designed from scratch." This is what struck me when I heard about the deal. Color is cobbling together existing technologies and not creating anything new. This deal pushed me into the "There is a Bubble" group. They had better have an ace up their sleeve.
- nikcub 16y ago
  don't focus on the features of the product - focus on the team. it might end up being something completely different (there is a word for that) from the perspective of 'can these guys spin a $40M investment into something that is worth more?', the answer is probably yes (probably enough to worth investing in) it isn't a bubble because this is still VC money, not crazy mom and pop shooting at the NASDAQ money. during the bubble this company would have already IPO'd and been worth $5B, and you parents would have called you up to ask about it.
  - dclaysmith 16y ago
    From everything I read, Color has a fantastic team and the Techcrunch article is actually pretty positive on the idea. I'm sure that the company will succeed. But saying a company will likely succeed and deserves an investment does not mean VCs shouldn't be making rational valuations based on real business metrics. And as the OP remarked, this is probably funding at a $80m+ valuation for a company with no product (when funded), no revenue, and plenty of competition.
    - MatthewPhillips 16y ago
      Right, this puts their valuation above those of already very successful companies.
      - MatthewPhillips 16y ago
        Actually it puts their valuation around the same that Lala was purchased for!
  - mkr-hn 16y ago
    Cuil had Googlers behind it. The people behind it can make a difference if the other fundamentals (market viability especially) are in place. Is there a $40m+ market for a group photo album app? This app is free, so they'll need a great monetization model even if the market is there.
    - nivertech 16y ago
      For $40M+ investment it should be $1B+ market. I guess they probably pitched something, like: "COLOR - the Facebook for Mobile"
    - nikcub 16y ago
      Cuil was trying to solve a problem that was already solved, and they were so arrogant in their media briefs you could just tell that they were on another planet Color, on the other hand, if they at least solve the problem of figuring out where somebody is I can see someone paying 200M+ for that (fb or google)
  - toddmorey 16y ago
    The team behind it makes the work I've seen so far all the more surprising. Have you played with the app? It's horrible. It's really bad. It's not fun to use--it's confusing and frustrating. The UI is a nightmare. It's buggy. I know some of those things can be smoothed out over time, but it doesn't feel like those early apps you see that have tons of promise but a few rough edges. As an investor, I'd be worried.
    - nikcub 16y ago
      I'd probably never install the app, but then I don't even use a smartphone - but they have enough money to make this mistake 10 times over who knows, they might end up powering location for foursquare, facebook, and google etc. in 3 years time as the new GPS.
scrrr 16y ago
Well, I am not in a bubble. If anything my software is vastly undervalued. I wouldn't know what to do with 40M. I could use 100k though..
- nadam 16y ago
  Yes, I see that some mobile-social-consumer stuff with very good connections to investors may be overvalued (but who knows?) (and they get huge tech-media attention), they may be in a bubble, but for most startups it is still 'business as usual' I think.
- pclark 16y ago
  The very fact you wouldn't know what to do with $40M is why you couldn't raise $40M, and they could.
  - Tyrannosaurs 16y ago
    Yes but knowing what you'd do with it and that being a good thing to do with it are different things. I don't see what they need $40m for that's going to deliver real value.
    - pclark 16y ago
      Why would you see what they need $40m from when you are on the outside looking in on a single product? Seriously.
      - Tyrannosaurs 16y ago
        Fair point, just $40m is a lot of money for a start up software business. If they're looking at something with a bricks and mortar component that would be different but I'm generally with DHH on this one - businesses of this sort can grow quickly without the need for this sort of capital.
      - dstein 16y ago
        There's absolutely nothing in the Techcrunch article that would suggest this company is doing anything so technologically complex that it can't be easily duplicated. They even admitted they have no concrete plan (or proof) they can monetize.
known 16y ago
Define bubble.
crux_ 16y ago
I'm curious about a couple of things, but also ignorant... so here's hoping for a helpful reply: - How much institutional money (pensions, sovereign wealth, etc) is ending up in VC? (My intuition tells me that the tremendous pressure on these funds to generate returns, which was a huge part of the housing bubble, is in turn fueling this bubble too, although not nearly at the same scale.)
sabat 16y ago
Anecdotal over-investment on the part of three VC companies != a bubble. A bubble is a stock market bubble based on massive, irrational over-investment on the part of VCs and stock market investors which, after implosion, will hurt the US and world economy. "Hey, those VCs are making some stupid investments" does not translate into an economic bubble. VCs frequently make stupid investments, because they're human and they're in the business of taking risks. Please, I urge you to read a history of the actual stock market dot-com bubble of the late '90s so you understand the word "bubble" in context.
HeyLaughingBoy 16y ago
Who cares if we're in a bubble? The only thing that matters is "how can I make money from it?"
tutanosh 16y ago
There is a bubble in people calling a tech bubble, surely this cannot last!
iqster 16y ago
One of the arguments I've heard that state that things are different this time around goes like this: it is far less capital intensive to do a startup now rather than in the late 90s because of open source software stacks and cloud computing providers. I agree with this statement but it means that the average software startup doesn't need a lot of cash to develop their product. Apart from ads and perhaps domain names (haha), why does anyone need so much cash? EDIT: I guess it could be patent licensing. I don't buy the technological complexity bit, personally. Also, if you know that everyone's headed towards a bubble, what is the correct response if you are a rational entrepreneur? Riding the bubble to the top and bailing before the crash does not jive with me.
- pclark 16y ago
  Developers are not cheap.
  - tomjen3 16y ago
    True and false, assuming color has one tech cofounder. What they need at this point is an Android and IOS client that can take pictures and record the current position of the user then you need a backend system that can handle the massive concurrent upload of pictures and do concurrent geo-spacial lookups. This is by far the most difficult part but MongoDB has a filesystem component and there is a plugin for Nginx that allows you to serve files directly from it. The geospacial indexing can be accomplished by creating a 2-dimentional index of picture buckets where each bucket contains the pictures taken within a small geographical area (say 2000x2000 meters) then all you only have to iterate over the pictures in the buckets that are within the current distance from your location. The clients can easily sort their images before their are uploaded. It may sound complicated but games do that kind of thing all the time, and often with bigger constraints (skipping a picture or two isn't going to be a big deal). So yeah devs are not cheap, but a technical co-founder should be able to develop this.
    - pclark 16y ago
      but could you make Color.com in a weekend?
z92 16y ago
We might be in a bubble. But that bubble will continue to inflate as long as people are screaming Bubble! Bubble!! The danger moment appears when all those predictions appear false and everyone start to believe, maybe this time, for some reason, exponential growth will continue forever. The moment when everyone shut up and start to join the bandwagon is when the bubble bursts. <-- That's from my experience.
- iqster 16y ago
  Your last sentence is very astute, and resonates with me personally. I thought valuations were insane in the late 90s but ultimately gave in. I think that was less than 6 months before the crash! Regarding exponential growth. We need to think carefully what kind of efficiency improvements can SUSTAIN exponential growth. The adoption of the Internet to the mainstream was a major event. I guess people might be betting that mobile/tablet is another one. I thought this was already priced in about 2 years ago. I can't think of what has changed in fundamentals that justifies the current situation (except for inflation perhaps).
tyng 16y ago
At least the domain name is worth some dollars. I actually quite like the concept - makes group photo sharing fun & easy. But worth $41m? Not yet
- jarin 16y ago
  I wonder how much they paid for the @color Twitter account.
  - MatthewPhillips 16y ago
    Twitter doesn't allow selling twitter accounts.
    - jarin 16y ago
      Do you really think whoever owned @color just gave it to them though? ;)
      - MatthewPhillips 16y ago
        No, I think you're right, but I wonder how they did it. Must have been under the table.
pclark 16y ago
Hmph. If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color. Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing? Companies like Color, AdKeeper and Flipboard have "crazy" valuations based on the founders having ridiculous resumes. They have all created billions of dollars of value for their investors, hell, why wouldn't you invest in that potential again? Rationalising this metaphorical bubble to domain prices is absurd, since domains have always been traded for eyebrow raising prices. You think that the domain color.com or path.com will be worth $10 in 5 years time? Seriously? Color almost certainly didn't require $41M to get to the product you see today, did people ever consider the company is - gasp - launching early and has the capital to iterate and scale for the next few years? I can think of lots of startups that raised $10M - $20M at company formation and has then spent the next few years (or more) iterating. Investors are less interested in where you are today, compared to where you are going
- MatthewPhillips 16y ago
  41 million for growth for an app before it launches?
  - deleted 16y ago
    [deleted]
  - blantonl 16y ago
    Color has launched on both iOS and Android. In addition, they didn't spend 41 million, they received funding in the amount of 41 million.
    - MatthewPhillips 16y ago
      I understand that. My comment was why invest in scaling when the need to scale hasn't been established?
      - blantonl 16y ago
citricsquid 16y ago
What's the difference between proof of it being a bubble and these guys just making a ridiculous investment based on hype?
- arkitaip 16y ago
  What's worrying is that these guys are Bain Capital, Sequoia Capital, and Silicon Valley Bank - some of the most influential tech investors in the world. They should know better. That or they have some incredible inside info on the Color team and their product.
  - pclark 16y ago
    They obviously have incredible inside information - you think they invested based on the Techcrunch post? Is it silly day on Hacker News or something?
    - scarmig 16y ago
      For real! These guys are masters of the universe. Obviously they couldn't massively overvaluate something.
greendestiny 16y ago
I think the only thing I'd generally agree on is that "in general it is agreed upon" are weasel words of the highest order.
mkr-hn 16y ago
If there is a bubble, then it's balancing stuff like this that will keep things in check. I've been noticing it too, and I think that's a sign that things are getting crazier as the months go by.
nadam 16y ago
It is not necessarily a bubble yet. I think investors think the mobile-social-local market will be owned by very few companies. (Only a few can survive because of the network effect). They invest into one company and hope that with a lot of advertisement money they can win. There would be a bubble if they would invest the same money into 10-20 or more similar companies randomly.
deleted 16y ago
[deleted]
edw519 16y ago
I don't know about the rest of the world, but we sure are in a bubble here at Hacker News. There seems to be a real disconnect between what people want to build/invest in and what people in the real world actually need and want to pay for. Just as sample of what I've witnessed in the past few years: Ask HN: How do you like my file sharing app? Ask HN: How do you like my social app for niche <x>? Ask HN: How do you like my twitter app? Ask HN: How do you like my facebook app? Ask HN: How do you like my iphone app? Ask HN: How do you like my facebook app that writes twitter apps? Ask HN: How do you like my game? Ask HN: How do you like my photo sharing app? Ask HN: How do you like my video sharing app? Ask HN: How do I monetize my free flashcard app? Ask HN: How do you like my app that helps other hackers to do <x>? Ask HN: How do I get traffic to my freemium app? Ask HN: How do I get angels/VCs interested? Ask HN: Look what I wrote this weekend! Ask HN: Look what I wrote in one night! Ask HN: Look what I wrote in 7 seconds! Customer 1: How can we sell through Amazon.com? Customer 2: How can we reduce inventory by $300 million? Customer 3: How can we increase conversion from 2% to 4%? Customer 4: How can we use software to reduce energy costs? Customer 5: How can we migrate one app into another? Customer 6: How can we get our phones to talk to our legacy apps? Customer 7: How can we take orders through the internet? Customer 8: How can we get our software package to do <x>? Customer 9: How can we reduce credit card fraud? Customer 10: How can we increase SEO effectiveness? Customer 11: How can we connect fulfillment and ecommerce? Customer 12: How can we increase revenue? Customers 13-200: How can we increase profitability?
- sabat 16y ago
  That does not a bubble make. Hackers are hacking a lot != we're in a bubble. A bubble is a stock market bubble based on mass amounts of over-investment by VCs and the public.
- run4yourlives 16y ago
  Re: Customer 2: How can we reduce inventory by $300 million? I'm wondering if anyone has explored the outsourcing of inventory? In other words, would it be viable to establish a giant warehouse of all things that people could use as their own personal warehouse... like co-locating a server.
david927 16y ago
We're still just starting a watershed moment for ways of finding productivity gains, forms of entertainment, ways to connect and share. We haven't scratched the surface yet. There are huge leaps being worked on in the foundation technology. Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.
- davidw 16y ago
  > Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future. That happens eventually, it seems, in a somewhat roundabout way, to some degree. Look at where the money from Viaweb ended up, as one example. Lots of successful people's money ends up as angel funding: Paypal, Delicious, and so on.
eli 16y ago
I'm pretty sure Dropbox paid a lot more than $7.95 for "dropbox.com" It's actually somewhat difficult to find an unregistered, pronounceable domain that's under 6 or 7 characters.
- karanbhangui 16y ago
  Dropbox had an already successful product operating on getdropbox.com. When you have some revenue numbers to play with, it makes sense to invest serious capital.
- jules 16y ago
  Is it actually important to have a short domain name? I either seldom visit a site, in which case I visit it through google, or I often visit the site, in which case it's in my url history completion list.
tyng 16y ago
The $41m injection might well kill the company. I've never seen startups with too much capital early on to become the next Google/Facebook/Twitter - you lose your chance to become "relentlessly resourceful"!
- blantonl 16y ago
  there is a big difference between having the capital available and actually spending it.
  - tyng 16y ago
    Doesn't it make you a bit relaxed? I've seen the effect of "too much money" first hand, regardless of spending
- wat55 16y ago
  Sorry, but your company dies when you have no more cash. The $41 million will help them survive for a long time.
  - tyng 16y ago
    But the point of the $41m from an investor's perspective is to get them to scale, not survive.
rapind 16y ago
If the $40m is mostly for marketing / advertising then this is definitely reminiscent of the last tech bubble.
digisth 16y ago
We might be, but are bubbles always bad? Lots of money gets thrown around. More people get jobs. Ideas are everywhere. People get experience starting and running companies. Interpersonal and business networks are built. Lots of bad ideas are funded, sure, but a few great ones also emerge. We shouldn't condemn bubbles as automatically bad. We should be aware of them, though.
- PaulJoslin 16y ago
  The problem with a bubble, is not that 'money is thrown around' by investors - but that the source of the money ends up being in public hands. The founders get their investment from the investors. The investors get their money back when the company is acquired (or makes money). In the early stages of a bubble, this process generally consists of 'money being thrown around' as you say. However, due to the hype of the returns from these 'investments' (e.g. Facebook growth) - it attracts the public investors into wanting to get in on the 'action'. Typically this is done through an IPO, which allows the public to come on board and potentially pay all previous investors / founders down the chain their money back (plus more). However, even without the IPO's of the last bubble (and they may still come!) - the public money is finding a way in (e.g. Banks setting up Social Media Investment Funds). Not to mention any other general investment companies having some of their portfolio riding on 'internet based stocks'. Then when the bubble eventually bursts (The trend reverses and everyone tries to get out while they can) - it is often the public investors which are left out of pocket / losing their homes / etc. The point made at the end of the article is, if you are in a start up right now (or even a VC) - it is better to get out early, than to get greedy and end up getting burnt when it bursts (e.g. GroupOn).
RyanMcGreal 16y ago
> No more 'x' buys 'y', where 'x' is some established player and 'y' is some new kid on the block that has a fancy office with pinball machines a hip domain name and an in-house chef. Or as was often the case, 'y' buys 'x'.
michaelcampbell 16y ago
I don't know if it's a bubble or not, nor do I have any idea if it's just because of where I browse (self selection), but I've noticed a trend lately. The trend is that people are excited about a startup BECAUSE IT'S A STARTUP, and not because of what the underlying value of the business' model/idea/value. As if the fact something is a startup is, in and of itself, somehow magical and has intrinsic worth. It reminds me of a few years ago when people were all googaw over social networks, because they were social networks. That seems to have passed now and they're focusing a bit more on how social can help this cause or that business model.
jarin 16y ago
Without any real knowledge of the VC industry, to me this "bubble" looks like VCs are just suffering from a lack of things to invest in due to the proliferation of angel investors. They need to show their investors that they're doing something, so they throw a grip of money at a company with a solid group of founders and a roadmap full of the hot buzzwords of the day.
orky56 16y ago
Back to the days of which venture has the highest burn-through rate!
toddmorey 16y ago
As someone else commented, Facebook could easily add a feature to show pictures from friends geotagged with your current location. (Not a perfect replacement but a lot of the magic.) Apple also appears to be getting aggressive in this space with the new version of mobile me. Color has an interesting vision, but I think traction as a photo sharing add-on is going to be tough once the social network and the mobile device maker get into the same exact business.
- bhousel 16y ago
  What is far more likely is for Color to try to get themselves acquired by Facebook. If this is their real company strategy, the $41M investment actually makes sense.
  - jamesmcintyre 16y ago
    that's exactly what I was thinking. I see this as being a very novel concept that if reaches a certain threshold of brand-awareness and good design could be a perfect acquisition target because merely replicating the feature-set would be like Google Video before Google acquired YouTube (it wouldn't be about the technical capability as much as the culture and community around the novel concept).
    - bhousel 16y ago
      Perhaps we're seeing the start of something new.. B2C = Business to consumer B2B = Business to business B2A = Business to acquisition?
      - jsnell 16y ago
        Building to flip is hardly a new trend.
        bhousel 16y ago
        True, but I just gave it a new acronym :) Edit: I'd like to clarify that the business model I'm suggesting feels different somehow. Yes people have built companies to flip before, but their valuation was still based on what they do as a company. If what I am suggesting is true, Color's valuation is based on potential shares in the company that it's being flipped to. These VCs are essentially investing in Facebook, pre-IPO (set for 2012) without going through Goldman's special purpose vehicle, and without dealing with the SEC's 500 shareholder regulations. If true, that would make this Color investment a very clever hack.
techiferous 16y ago
What about the popularity of the lean startup approach? The focus on data and customers tends to keep those startups real. Shouldn't this mitigate some tendency toward a bubble?
yannickmahe 16y ago
What I don't get, economically speaking, is how we can both be in a bubble and in a barely recovering economy. In other words, how do these angels and VCs still have that much money to invest in such companies?
- futuremint 16y ago
  Most VC's are backed by enormous pension funds and/or other group retirement vehicles. This is how they can afford to bet large sums of money on multiple companies with an expected payoff of only 1 in 10 companies on long time frames. The pension isn't using that money (right now anyway), so the VC is free to do with it what they want, and in the end the money comes back to the pension in multiples. At least this is my understanding talking to an actual VC (not in a fund-raising situation, just casually).
- tyng 16y ago
  Ever heard of the term "two-speed economy"? It's happening right now on a much larger scale in Australia.
  - jacques_chester 16y ago
    Indeed. Today in The Australian there was a story about laundry hands on offshore rigs being paid ~$420k. http://www.theaustralian.com.au/national-affairs/laundry-staff-on-420k-a-year/story-fn59niix-1226027697866 http://www.theaustralian.com.au/national-affairs/laundry-sta...
- adaml_623 16y ago
  Pay attention and you'll see that the rich have been getting richer even with the recession. They need investment opportunites and investing in real estate probably isn't popular. Hence angel funds have tons of money to throw around.
bhurt 16y ago
One reason I know we're not in a bubble: because everyone is saying we're in a bubble. For you young whippersnappers who were too young to remember the 90's, a bubble is a manifestation of irrational exuberance- with (almost) everyone saying it's a whole new market, it doesn't matter how much the thing costs it's worth it to buy it because it's price is just going to keep going up up up, so do whatever you need to do to buy in now, because the longer you wait, the less you make. In other words- it's a bubble when everyone is saying it's not a bubble. But if everyone is saying it IS a bubble, then it's not a bubble. There is a difference between a healthy (or at least "not on death's doorstop") economy and a bubble.
trotsky 16y ago
Make no mistake, a big factor in the creation / encouragement of recent bubbles has been super easy monetary policy that provides cheap and easy credit. In '00 we had a market crash after a dramatic run up of stocks in general and tech in specific. In 1998-1999 rates were low and credit was easily available [1]. As we led up to the millennium changeover ("Y2K") unprecedented amounts of short term capital were made available to banks and other institutions to allow them to weather any run on banks that might occur [2]. This money made it out the the markets and proceeded to whip them into something that was similar to a drug fueled frenzy: the nasdaq has never come close to those levels again. Alan Greenspan later noted that he believed his actions played an important role in the boom/bust. Once the fed windows closed for Y2K and interest rates were pulled upwards quickly all the money disappeared. Coincidence? After the dot.com bust targeted rates were lowered dramatically to attempt to smooth out the markets. Check out this chart of historical fed funds rates as it is really easy to spot the cycles [3]. The next bubble was in housing, and predictably it began to burst when interest rates were raised again. Look at that chart again [3]. The last couple of years have seen the lowest interest rates that have ever been available since the chart started more than 50 years ago. They have been approximately 0 for some time. In addition, the quantitative easing programs that the fed has engaged in (currently, QE2 composed of $600BN worth of treasury debt purchases) has left monetary policy so easy that if it were a woman the village would be talking. I've heard some confusion about how this money makes it into the markets. It's really quite simple. Many people and organizations who would normally put some of their money into safe debt like treasuries decide not to because they can't make any money off of it and they are concerned about the effects of inflation. This causes them to look for better investments that will have a chance of returning something decent. The explosion of angels in SV is directly related to this process - these geeks, unable to make a good return in some traditional markets switched to making private investments. If more money comes into a sector, valuations will naturally rise and the quality of the companies funded will likely fall (or at least that seems reasonable to me). QE2 is scheduled to end June 30th, 2011. Unless it is followed by a "QE3" (which there is probably a strong chance of) monetary supply will contract and interest rates will rise. At some point fed target rates will need to rise as a response to current growing inflation in the commodity markets and the retail increases in food and gasoline. Once the fed signals that the party is over, a ton of this money is going to run for the exits [4]. Don't expect to be able to close your next round unless you're of stellar quality or can hold out for 2-3 years. Or at least, that's one version of it. Of course, no one whose business relies on the expansion of public and private equity prices will explain this to you. The reasons for that should be relatively obvious. [NOTE: I am not an economist. I wasn't classically schooled in this stuff. I'm also not a tea partier nor do I have any particular political axe to grind here. I am just a coder who has been watching carefully since the dot-com crash when I took a very big haircut. Take it all for what it's worth] [1] https://secure.wikimedia.org/wikipedia/en/wiki/Dot_com_bubble#Bubble_growth https://secure.wikimedia.org/wikipedia/en/wiki/Dot_com_bubbl... [2] http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000scX http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id... [3] https://secure.wikimedia.org/wikipedia/en/wiki/Federal_funds_rate#Historical_rates https://secure.wikimedia.org/wikipedia/en/wiki/Federal_funds... [4] http://www.chrismartenson.com/martensonreport/coming-rout http://www.chrismartenson.com/martensonreport/coming-rout
dclaysmith 16y ago
Someone should track the Color Fund vs. the 43 participants in YCombinator W2011 class: Round Color's (err) round up to $43m. Then say that Milner's 150K was actually $1m with the same terms (convertible debt). You'd have 2 investments of $43m. Track follow up rounds for the 43 YC alumni and Color and see which pot grew the most.
- kongqiu 16y ago
  I know which side of that bet I'm taking :)
brackin 16y ago
.com's are no longer important, blekko, duckduckgo, drop.io and similar companies are proving this. It's not a big deal anymore. Every time I pitch Reward.io I get asked "how will It make money" so saying that profits don't matter anymore is a big understatement in my opinion. New business models are being developed and used to make money like Freemium and more subscription models. There will always be some startups with over valued valuations but the big thing is startups don't think they are invincible, with Digg and Myspace startups know they could die if they don't work hard and try and find a way to make money, even twitter which has gone almost too far recently with DickBar.
NxguiGui 16y ago
Don't follow the hype:) The way i see things is simple. X angel/vc knows how to play the game of taking some Y startup with non super unique idea/product and sell it to the Z highest bidder. When X invest money the most important thing is to make Big News. The Z are full with money to spend, they know that money need to circulate in order to multiply. They watch The News. They react. With money. On the other side of the line are X, they also watch the news, dream for success and want to be Zuckerbergs. And so on. From my perspective the smartest move is to connect demands of Z and availability of Y. Be a X or The News channel. But i am small, insignificant, away from first hand experience and everything that i think is away from The Game that is x,y,z. Thinks i can do with one million funding, if i have it, in terms of product development, team building, business development, are so old school and simple that are not interesting to put here at all. For me in this position the only valuable model is bootstrapping everything, test early in real world and iterate slowly and carefully in terms of technology and business model. But i deeply respect The Game of x,y and z, not so in direct meaning but as side effect. If all this money are 20% effective they push new technology to the limit and test the audience and give as a valuable lessons without risking money that we don't have. So if Z want to spend it's their decision to make. Our is to choose a) to be valuable Y or b) to be other letter in the equation making our own working function, with our own proven methods and variables:)
wat55 16y ago
Sorry, but the U.S. economy is a $14 trillion economy. Anyone who says we're in a bubble based on the aggregate Silicon Valley venture capital funding in the last year is getting ahead of themselves. Before you lecture us on a bubble, try to understand some basics on the U.S. economy.
- sharonpaul 16y ago
  I am commenting from the perspective of someone who is not in the US. Currently from the Asian region (excluding China), valuations are no where near that of the US. In Singapore alone, even with for a startup with vast customer based overseas is being acquired for only $10million. Yet, that $10million acquisition is more than enough to make the startup a superstar in our ecosystem. Perhaps this bubble is only present in the states, but elsewhere in the world, valuations are still reasonable.
mendable 16y ago
Asking the wrong question? What about asking, "How has taking this amount of funding helped this business?" Strategically, this much funding through all of the controversy it has generated, will guarantee this company/brand gets in front of nearly every early adopter over the next couple of weeks. It will drive hundreds of thousands of people to try it out. And that's before they've spent a penny of it. Loads of Posts on HN alone excitedly linking to the app on Android etc (one on the front page right now). After that, it will sink or swim on it's own merit. Would that have happened if they hadn't taken this funding? No. It would have had 5 minutes on TechCrunch, and then been forgotten about because it may not have been remarkable. Now all they need to do is implement a business model / some way to make money from it so their per-user revenue exceeds their cost of user acquisition, and use the remaining $38,000,000 as a marketing budget to spread it to everyone else. Profit.
- kovar 16y ago
  So, of the $41M, $3M goes to technologists and $38M goes to ad agencies? Hmmmm....
kia 16y ago
jacquesm really added ads to his site.
sdfghtrjyt 16y ago
ONLINE STORE: ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== Air jordan(1-24)shoes $30 Handbags(Coach l v f e n d i d&g) $35 Tshirts (Polo ,ed hardy,lacoste) $15 Jean(True Religion,ed hardy,coogi) $30 Sunglasses(Oakey,coach,gucci,A r m a i n i) $15 New era cap $12 Bikini (Ed hardy,polo) $20 accept paypal and free shipping ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )====
joelhooks 16y ago
This is a typical business cycle[1]. Easy credit, low interests rates, no incentive to save. [1] http://en.wikipedia.org/wiki/Austrian_business_cycle_theory http://en.wikipedia.org/wiki/Austrian_business_cycle_theory
fastviper 16y ago
TL;DR: bubble is intentionally blown, so that certain people earn more money Pumping bubble is intentional. Financial world knows and uses this technique for years. They KNOW we have a bubble and THEY pump it up. They earn money on stocks rising while bubble rises. The more they invest, the more people come to them with the money (for investment). They earn money on those people (commissions, investment credits, accounts, personal advisory). And as more and more money pours from the sky, the market rises. And they earn on stock rising. Suckers (commoners like we) believe that they can catch a train with next Facebook and sell houses or use life savings in hope for a fortune. And financial world earns. At the proper moment leaders of this mess bail out and we have a "crisis". Most people decide to invest too late (for example now it's much too late) and also bail out MUCH too late (after few hours or days from bubble blowout). But those managers and capital owners.. People cry, media report suicides and they just are buying another Ferrari and houses in the Canarian/Carribean. They smoke a cigar, drink whiskey and looking at the sky think: 'suckers, so long till next bubble'. Works like charm for years. So sad that for example my country's currency ex ratio and stock exchange is so vulnerable to this. Financial managers are not stupid. They are pragmatically cynical.
frederickcook 16y ago
Best summary of bubble/non-bubble debate I've read yet: [Are we in a bubble?] “Maybe,” says Naval, “Certainly valuations are creepy up quickly in all stages of deals. On the other hand, 10 years ago when we all felt like this last time the total market size for any company was at maximum 100 million potential users. Now we’re in the billions of users. Facebook connections alone bring 500 million, Twitter 200 million. 10 years ago we only connected for brief periods of time when we were at our PCs. Now we’re connected to apps all the time, everywhere we go. So maybe there’s a bubble. It’s hard to say. But we’re also looking at unprecedented opportunity.” - http://www.bothsidesofthetable.com/2011/03/22/the-magic-midnight-mind-meld/ http://www.bothsidesofthetable.com/2011/03/22/the-magic-midn...
svrocks 16y ago
We're not really in a bubble until Color.com (NSDQ: COLR) IPOs at a $500MM valuation and quadruples on its first day of trading. And then we're not REALLY in a bubble until Air.com, the leader in the social breathing space IPOs at twice that.
thedaveoflife 16y ago
relavent link to his point about domain names: wallgreens buys drugstore.com for 409M. http://dealbook.nytimes.com/2011/03/24/walgreens-to-buy-drugstore-com/ http://dealbook.nytimes.com/2011/03/24/walgreens-to-buy-drug...
ohashi 16y ago
I think the domain name argument is bunk. The domain market isn't 'hot' again by any means. In fact it hasn't recovered from peaking in 2007-2008.
Kilimanjaro 16y ago
So flickr goes mobile, gets funding, is sold for some billions, then a decade later it is dumped for a handful of millions? The lesson here is not to blame the idea guys, they will profit from it dearly. Or blame the initial and subsequent investors all the way up to the (ponzi) pyramid, they will profit too. Or even blame the guy who signed the deal when bigCorp bought them, he got his cut under the table too. Blame the poor souls who own shares of bigCorp for not enforcing accountability in their C*Os spending money left and right chasing the next bubble.
evo_9 16y ago
From Colo[u]r.com: "Think fast! Find someone. Take pictures together. Party. Play date. Lunch? Simultaneously use multiple iPhones and Androids to capture photos, videos, and conversations into a group album. There's no attaching, uploading, or friending to do. Share together in a new, moving social network. Just look around."
- kovar 16y ago
  I wonder if encouraging people to digitally record everyone around them will lead to legal troubles at some point? Back in the day when I shot film, I'd often get the subject to sign a model release. Society and technology have changed a lot, but if we're going to monetize something like Color, the people whose images appear may want some of that money.
grellas 16y ago
I guess it is a matter of terminology but I have to disagree on this one. A bubble is all-pervasive and extreme. It represents a systematic investment mania where everything becomes surreal. People sell vast tracts of land for a prized tulip. Junk companies with nothing to offer but a vague concept about revolutionizing how this or that will be done owing to some new phenomenon such as the internet make serial stock offerings to the public and get hundreds of millions for a modest percent of their unproven company. Lenders pile on with countless real estate loans to unqualified borrowers secure in the belief that what are really worthless loans will make them huge profits because they can be packaged and disposed of through artificial securitized instruments and because housing prices will continue rise broadly for endless periods. All this begins to occur in endless and ever-expanding streams until, in the end, large numbers of people are sucked into the vortex. In such cases, broad markets affecting an entire society are sent into a frenzy by which average people start both to get rich quick and to want to get rich quick. Large numbers of people leap in, therefore, in the hope of making fast money and abandon their common sense in the process. And when things go bust, this has a major systemic effect on the broader economy. A stock market that had reached stratospheric heights loses 70% of its value. A real estate market that had become so pricey as to make housing unaffordable for average buyers plummets to the depths, taking down people's savings en masse. The current phenomenon represented by high valuations in parts of the startup world is more transient and limited. It has not affected the broader society at all, only an insular investment community. If it fell apart today in toto, it would leave a trail of victims within the VC and angel communities but would be felt scarcely at all in the broader economy, or at least would likely have no systemic impact. Viewed from the standpoint of the broader society, I think what we are looking at here is a speculative frenzy affecting a comparatively narrow asset class. The prices of some startups have increased considerably. The prices of companies generally in the business world remain moderate, if not depressed. Is it a pricing frenzy within a particular segment of an asset class? Probably. Is it a bubble? No. Or at least not by historic definitions. Again, I wouldn't disagree with a single specific point made in this piece, and the author as usual makes some astute observations. I would disagree about the terminology, though, and would say that we should reserve use of the term "bubble" for the sorts of massively dislocating events that it historically has come to represent.
- 16y ago
deleted 16y ago
[deleted]
kirbman89 16y ago
Bubble Smubble. This bubble has a long ways to go before it pops. We're coming out of a recession! We have a few years left before we should be concerned.
jbooth 16y ago
So, at first everyone criticizes these guys for being on the wrong side of the chicken-egg problem, then everyone says they raised too much money and are being too ostentatious. Seems like they're attacking the chicken-egg problem in the easiest way, to me, the domain name and big dollar shine on everything make them look more credible and established. And they have enough runway to focus on product for the first few years while growing the userbase without having to monetize immediately. Could still flop a million ways, of course. It just seems like going all-in could actually be a viable way to attack emerging social networky markets.
antidaily 16y ago
41 million (and growing): The number of views for Rebecca Black's "Friday" video on YouTube: http://www.youtube.com/watch?v=CD2LRROpph0 http://www.youtube.com/watch?v=CD2LRROpph0
- jacques_chester 16y ago
  I would not have paid $1 to view it.
Tycho 16y ago
The previous bubble took 5 years to form and about 2 months to go 'pop'. I'm not sure if that timetable is trustworthy, but we definitely seem to be accelerating along the curve. Just thinking aloud here, but how on earth would you make a trustworthy timetable out of that observation? What do you measure? Economy was size A in year Y2K, technological faciliation was a level B, there were C people involved directly with the market; now the economy is size X, tech is level Y, and Z people are at the table... like why would you think one previous bubble was in some way proportional to a present one? One last thing, what to make of Max Andreeson's pet theory that there never was a real dotcom 'bubble' - that a few companies were ridiculously overvalued but overall most were ok and in fact more investment should have happened (in a more diversified manner)?
beeeph 16y ago
When a tech bubble pops, how does it affect a funded startup compared to a bootstrapped startup? I'm relatively new to the startup world, but as I understand it, startups that need funding are generally the only one's negatively affected when the bubble pops since funding becomes more scarce. If so, wouldn't that benefit the bootstrappers?
sdizdar 16y ago
Not sure if this particular investment can be called as a sign of a bubble. Social networks, locality, mobile, and things are still new and unknown. But there is a huge potential. There will be soon 2B people on the earth with constant (mobile) connection to the internet. In order to make FourSquare clone, you don't need a lot of investment for development but you need a LOT of money to acquire users and become a player in that space. However, the assumption is that there will be only few players and that is why there is a need for these kind of bold investment moves. I disagree. The system will become even more fragmented, democratized, and complex with many unknowns, so classical ways of getting market share will not work. In other words, even with 41M of investment, the company will not be able to fight against some weird and original apps / social network or even coupon buying system.
atrevisan 16y ago
Typically those kinds of things would happen once every year or so, twitter (I still don't fully grok their business model), facebook and so on. Don't understand Twitter's business model? Promoted tweets have the ability to become AdWords for social. Millions of pieces of content are shared everyday giving insight into user's pleasures, dislikes, and lifestyle. This user data, when analyzed, has immense value for companies interested in purchasing. That information is worth a ton. Bubble or no bubble, I sure grok their business model.
davidmathers 16y ago
As the great philosopher Inigo Montoya once said: "You keep using that word..." Let's talk about this chart for a second: http://www.google.com//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1300998901448&chddm=1394503&chls=IntervalBasedLine&q=INDEXSP:.INX&ntsp=0 http://www.google.com//finance?chdnp=1&chdd=1&chds=1... Ok, see that 4000% increase in 18 months? That's what a bubble looks like. Now, please point out to me where on the graph it made more sense to invest your retirement money in the S&P 500 rather than Amazon. Wait, you mean pets.com, not amazon.com? Fair enough. But now I'm not sure what your argument is. That color.com is going to fail and the investor are going to lose all their money? That is what you're saying right? Because if you're saying they're taking a large risk that has a very small chance of paying off then you're saying nothing. That's what investors do. That's what makes us (as a society) all rich. If your argument is that capital is being misallocated then you have to say why and where the capital should be allocated. Which brings us to what is actually a bubble and not just people with lots of money taking big risks that may not pay off: 1. capital being invested by (otherwise) non-investors 2. who can't afford to lose 3. who have come to believe, with certainty, that they can't lose That was the case in both the stock bubble and real estate bubble. It's not the case now. I guess the headline "valuations are unrealistically high" wouldn't generate as much heat and would require a coherent defense.
jeremymusighi 16y ago
Nice touch writing out the full "$41,000,000" rather than just "$41M". Definitely makes it look like more. Although I don't disagree that the size of the investment seems unjustified.
labanux 16y ago
Yes we are..

369 points by revorad 16y ago

"A $41M investment at this stage in the life cycle of a business is normally associated with either something that is technologically complex and thus capital intensive or that requires new processes to be designed from scratch." This is what struck me when I heard about the deal. Color is cobbling together existing technologies and not creating anything new. This deal pushed me into the "There is a Bubble" group. They had better have an ace up their sleeve.

nikcub 16y ago
don't focus on the features of the product - focus on the team. it might end up being something completely different (there is a word for that) from the perspective of 'can these guys spin a $40M investment into something that is worth more?', the answer is probably yes (probably enough to worth investing in) it isn't a bubble because this is still VC money, not crazy mom and pop shooting at the NASDAQ money. during the bubble this company would have already IPO'd and been worth $5B, and you parents would have called you up to ask about it.
- dclaysmith 16y ago
  From everything I read, Color has a fantastic team and the Techcrunch article is actually pretty positive on the idea. I'm sure that the company will succeed. But saying a company will likely succeed and deserves an investment does not mean VCs shouldn't be making rational valuations based on real business metrics. And as the OP remarked, this is probably funding at a $80m+ valuation for a company with no product (when funded), no revenue, and plenty of competition.
  - MatthewPhillips 16y ago
    Right, this puts their valuation above those of already very successful companies.
    - MatthewPhillips 16y ago
      Actually it puts their valuation around the same that Lala was purchased for!
- mkr-hn 16y ago
  Cuil had Googlers behind it. The people behind it can make a difference if the other fundamentals (market viability especially) are in place. Is there a $40m+ market for a group photo album app? This app is free, so they'll need a great monetization model even if the market is there.
  - nivertech 16y ago
    For $40M+ investment it should be $1B+ market. I guess they probably pitched something, like: "COLOR - the Facebook for Mobile"
  - nikcub 16y ago
    Cuil was trying to solve a problem that was already solved, and they were so arrogant in their media briefs you could just tell that they were on another planet Color, on the other hand, if they at least solve the problem of figuring out where somebody is I can see someone paying 200M+ for that (fb or google)
- toddmorey 16y ago
  The team behind it makes the work I've seen so far all the more surprising. Have you played with the app? It's horrible. It's really bad. It's not fun to use--it's confusing and frustrating. The UI is a nightmare. It's buggy. I know some of those things can be smoothed out over time, but it doesn't feel like those early apps you see that have tons of promise but a few rough edges. As an investor, I'd be worried.
  - nikcub 16y ago
    I'd probably never install the app, but then I don't even use a smartphone - but they have enough money to make this mistake 10 times over who knows, they might end up powering location for foursquare, facebook, and google etc. in 3 years time as the new GPS.

scrrr 16y ago

Well, I am not in a bubble. If anything my software is vastly undervalued. I wouldn't know what to do with 40M. I could use 100k though..

nadam 16y ago
Yes, I see that some mobile-social-consumer stuff with very good connections to investors may be overvalued (but who knows?) (and they get huge tech-media attention), they may be in a bubble, but for most startups it is still 'business as usual' I think.
pclark 16y ago
The very fact you wouldn't know what to do with $40M is why you couldn't raise $40M, and they could.
- Tyrannosaurs 16y ago
  Yes but knowing what you'd do with it and that being a good thing to do with it are different things. I don't see what they need $40m for that's going to deliver real value.
  - pclark 16y ago
    Why would you see what they need $40m from when you are on the outside looking in on a single product? Seriously.
    - Tyrannosaurs 16y ago
      Fair point, just $40m is a lot of money for a start up software business. If they're looking at something with a bricks and mortar component that would be different but I'm generally with DHH on this one - businesses of this sort can grow quickly without the need for this sort of capital.
    - dstein 16y ago
      There's absolutely nothing in the Techcrunch article that would suggest this company is doing anything so technologically complex that it can't be easily duplicated. They even admitted they have no concrete plan (or proof) they can monetize.

known 16y ago

Define bubble.

crux_ 16y ago

I'm curious about a couple of things, but also ignorant... so here's hoping for a helpful reply: - How much institutional money (pensions, sovereign wealth, etc) is ending up in VC? (My intuition tells me that the tremendous pressure on these funds to generate returns, which was a huge part of the housing bubble, is in turn fueling this bubble too, although not nearly at the same scale.)

sabat 16y ago

Anecdotal over-investment on the part of three VC companies != a bubble. A bubble is a stock market bubble based on massive, irrational over-investment on the part of VCs and stock market investors which, after implosion, will hurt the US and world economy. "Hey, those VCs are making some stupid investments" does not translate into an economic bubble. VCs frequently make stupid investments, because they're human and they're in the business of taking risks. Please, I urge you to read a history of the actual stock market dot-com bubble of the late '90s so you understand the word "bubble" in context.

HeyLaughingBoy 16y ago

Who cares if we're in a bubble? The only thing that matters is "how can I make money from it?"

tutanosh 16y ago

There is a bubble in people calling a tech bubble, surely this cannot last!

iqster 16y ago

One of the arguments I've heard that state that things are different this time around goes like this: it is far less capital intensive to do a startup now rather than in the late 90s because of open source software stacks and cloud computing providers. I agree with this statement but it means that the average software startup doesn't need a lot of cash to develop their product. Apart from ads and perhaps domain names (haha), why does anyone need so much cash? EDIT: I guess it could be patent licensing. I don't buy the technological complexity bit, personally. Also, if you know that everyone's headed towards a bubble, what is the correct response if you are a rational entrepreneur? Riding the bubble to the top and bailing before the crash does not jive with me.

pclark 16y ago
Developers are not cheap.
- tomjen3 16y ago
  True and false, assuming color has one tech cofounder. What they need at this point is an Android and IOS client that can take pictures and record the current position of the user then you need a backend system that can handle the massive concurrent upload of pictures and do concurrent geo-spacial lookups. This is by far the most difficult part but MongoDB has a filesystem component and there is a plugin for Nginx that allows you to serve files directly from it. The geospacial indexing can be accomplished by creating a 2-dimentional index of picture buckets where each bucket contains the pictures taken within a small geographical area (say 2000x2000 meters) then all you only have to iterate over the pictures in the buckets that are within the current distance from your location. The clients can easily sort their images before their are uploaded. It may sound complicated but games do that kind of thing all the time, and often with bigger constraints (skipping a picture or two isn't going to be a big deal). So yeah devs are not cheap, but a technical co-founder should be able to develop this.
  - pclark 16y ago
    but could you make Color.com in a weekend?

z92 16y ago

We might be in a bubble. But that bubble will continue to inflate as long as people are screaming Bubble! Bubble!! The danger moment appears when all those predictions appear false and everyone start to believe, maybe this time, for some reason, exponential growth will continue forever. The moment when everyone shut up and start to join the bandwagon is when the bubble bursts. <-- That's from my experience.

iqster 16y ago
Your last sentence is very astute, and resonates with me personally. I thought valuations were insane in the late 90s but ultimately gave in. I think that was less than 6 months before the crash! Regarding exponential growth. We need to think carefully what kind of efficiency improvements can SUSTAIN exponential growth. The adoption of the Internet to the mainstream was a major event. I guess people might be betting that mobile/tablet is another one. I thought this was already priced in about 2 years ago. I can't think of what has changed in fundamentals that justifies the current situation (except for inflation perhaps).

tyng 16y ago

At least the domain name is worth some dollars. I actually quite like the concept - makes group photo sharing fun & easy. But worth $41m? Not yet

jarin 16y ago
I wonder how much they paid for the @color Twitter account.
- MatthewPhillips 16y ago
  Twitter doesn't allow selling twitter accounts.
  - jarin 16y ago
    Do you really think whoever owned @color just gave it to them though? ;)
    - MatthewPhillips 16y ago
      No, I think you're right, but I wonder how they did it. Must have been under the table.

pclark 16y ago

Hmph. If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color. Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing? Companies like Color, AdKeeper and Flipboard have "crazy" valuations based on the founders having ridiculous resumes. They have all created billions of dollars of value for their investors, hell, why wouldn't you invest in that potential again? Rationalising this metaphorical bubble to domain prices is absurd, since domains have always been traded for eyebrow raising prices. You think that the domain color.com or path.com will be worth $10 in 5 years time? Seriously? Color almost certainly didn't require $41M to get to the product you see today, did people ever consider the company is - gasp - launching early and has the capital to iterate and scale for the next few years? I can think of lots of startups that raised $10M - $20M at company formation and has then spent the next few years (or more) iterating. Investors are less interested in where you are today, compared to where you are going

MatthewPhillips 16y ago
41 million for growth for an app before it launches?
- deleted 16y ago
  [deleted]
- blantonl 16y ago
  Color has launched on both iOS and Android. In addition, they didn't spend 41 million, they received funding in the amount of 41 million.
  - MatthewPhillips 16y ago
    I understand that. My comment was why invest in scaling when the need to scale hasn't been established?
    - blantonl 16y ago

citricsquid 16y ago

What's the difference between proof of it being a bubble and these guys just making a ridiculous investment based on hype?

arkitaip 16y ago
What's worrying is that these guys are Bain Capital, Sequoia Capital, and Silicon Valley Bank - some of the most influential tech investors in the world. They should know better. That or they have some incredible inside info on the Color team and their product.
- pclark 16y ago
  They obviously have incredible inside information - you think they invested based on the Techcrunch post? Is it silly day on Hacker News or something?
  - scarmig 16y ago
    For real! These guys are masters of the universe. Obviously they couldn't massively overvaluate something.

greendestiny 16y ago

I think the only thing I'd generally agree on is that "in general it is agreed upon" are weasel words of the highest order.

mkr-hn 16y ago

If there is a bubble, then it's balancing stuff like this that will keep things in check. I've been noticing it too, and I think that's a sign that things are getting crazier as the months go by.

nadam 16y ago

It is not necessarily a bubble yet. I think investors think the mobile-social-local market will be owned by very few companies. (Only a few can survive because of the network effect). They invest into one company and hope that with a lot of advertisement money they can win. There would be a bubble if they would invest the same money into 10-20 or more similar companies randomly.

deleted 16y ago

[deleted]

edw519 16y ago

I don't know about the rest of the world, but we sure are in a bubble here at Hacker News. There seems to be a real disconnect between what people want to build/invest in and what people in the real world actually need and want to pay for. Just as sample of what I've witnessed in the past few years: Ask HN: How do you like my file sharing app? Ask HN: How do you like my social app for niche <x>? Ask HN: How do you like my twitter app? Ask HN: How do you like my facebook app? Ask HN: How do you like my iphone app? Ask HN: How do you like my facebook app that writes twitter apps? Ask HN: How do you like my game? Ask HN: How do you like my photo sharing app? Ask HN: How do you like my video sharing app? Ask HN: How do I monetize my free flashcard app? Ask HN: How do you like my app that helps other hackers to do <x>? Ask HN: How do I get traffic to my freemium app? Ask HN: How do I get angels/VCs interested? Ask HN: Look what I wrote this weekend! Ask HN: Look what I wrote in one night! Ask HN: Look what I wrote in 7 seconds! Customer 1: How can we sell through Amazon.com? Customer 2: How can we reduce inventory by $300 million? Customer 3: How can we increase conversion from 2% to 4%? Customer 4: How can we use software to reduce energy costs? Customer 5: How can we migrate one app into another? Customer 6: How can we get our phones to talk to our legacy apps? Customer 7: How can we take orders through the internet? Customer 8: How can we get our software package to do <x>? Customer 9: How can we reduce credit card fraud? Customer 10: How can we increase SEO effectiveness? Customer 11: How can we connect fulfillment and ecommerce? Customer 12: How can we increase revenue? Customers 13-200: How can we increase profitability?

sabat 16y ago
That does not a bubble make. Hackers are hacking a lot != we're in a bubble. A bubble is a stock market bubble based on mass amounts of over-investment by VCs and the public.
run4yourlives 16y ago
Re: Customer 2: How can we reduce inventory by $300 million? I'm wondering if anyone has explored the outsourcing of inventory? In other words, would it be viable to establish a giant warehouse of all things that people could use as their own personal warehouse... like co-locating a server.

david927 16y ago

We're still just starting a watershed moment for ways of finding productivity gains, forms of entertainment, ways to connect and share. We haven't scratched the surface yet. There are huge leaps being worked on in the foundation technology. Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.

davidw 16y ago
> Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future. That happens eventually, it seems, in a somewhat roundabout way, to some degree. Look at where the money from Viaweb ended up, as one example. Lots of successful people's money ends up as angel funding: Paypal, Delicious, and so on.

eli 16y ago

I'm pretty sure Dropbox paid a lot more than $7.95 for "dropbox.com" It's actually somewhat difficult to find an unregistered, pronounceable domain that's under 6 or 7 characters.

karanbhangui 16y ago
Dropbox had an already successful product operating on getdropbox.com. When you have some revenue numbers to play with, it makes sense to invest serious capital.
jules 16y ago
Is it actually important to have a short domain name? I either seldom visit a site, in which case I visit it through google, or I often visit the site, in which case it's in my url history completion list.

tyng 16y ago

The $41m injection might well kill the company. I've never seen startups with too much capital early on to become the next Google/Facebook/Twitter - you lose your chance to become "relentlessly resourceful"!

blantonl 16y ago
there is a big difference between having the capital available and actually spending it.
- tyng 16y ago
  Doesn't it make you a bit relaxed? I've seen the effect of "too much money" first hand, regardless of spending
wat55 16y ago
Sorry, but your company dies when you have no more cash. The $41 million will help them survive for a long time.
- tyng 16y ago
  But the point of the $41m from an investor's perspective is to get them to scale, not survive.

rapind 16y ago

If the $40m is mostly for marketing / advertising then this is definitely reminiscent of the last tech bubble.

digisth 16y ago

We might be, but are bubbles always bad? Lots of money gets thrown around. More people get jobs. Ideas are everywhere. People get experience starting and running companies. Interpersonal and business networks are built. Lots of bad ideas are funded, sure, but a few great ones also emerge. We shouldn't condemn bubbles as automatically bad. We should be aware of them, though.

PaulJoslin 16y ago
The problem with a bubble, is not that 'money is thrown around' by investors - but that the source of the money ends up being in public hands. The founders get their investment from the investors. The investors get their money back when the company is acquired (or makes money). In the early stages of a bubble, this process generally consists of 'money being thrown around' as you say. However, due to the hype of the returns from these 'investments' (e.g. Facebook growth) - it attracts the public investors into wanting to get in on the 'action'. Typically this is done through an IPO, which allows the public to come on board and potentially pay all previous investors / founders down the chain their money back (plus more). However, even without the IPO's of the last bubble (and they may still come!) - the public money is finding a way in (e.g. Banks setting up Social Media Investment Funds). Not to mention any other general investment companies having some of their portfolio riding on 'internet based stocks'. Then when the bubble eventually bursts (The trend reverses and everyone tries to get out while they can) - it is often the public investors which are left out of pocket / losing their homes / etc. The point made at the end of the article is, if you are in a start up right now (or even a VC) - it is better to get out early, than to get greedy and end up getting burnt when it bursts (e.g. GroupOn).

RyanMcGreal 16y ago

> No more 'x' buys 'y', where 'x' is some established player and 'y' is some new kid on the block that has a fancy office with pinball machines a hip domain name and an in-house chef. Or as was often the case, 'y' buys 'x'.

michaelcampbell 16y ago

I don't know if it's a bubble or not, nor do I have any idea if it's just because of where I browse (self selection), but I've noticed a trend lately. The trend is that people are excited about a startup BECAUSE IT'S A STARTUP, and not because of what the underlying value of the business' model/idea/value. As if the fact something is a startup is, in and of itself, somehow magical and has intrinsic worth. It reminds me of a few years ago when people were all googaw over social networks, because they were social networks. That seems to have passed now and they're focusing a bit more on how social can help this cause or that business model.

jarin 16y ago

Without any real knowledge of the VC industry, to me this "bubble" looks like VCs are just suffering from a lack of things to invest in due to the proliferation of angel investors. They need to show their investors that they're doing something, so they throw a grip of money at a company with a solid group of founders and a roadmap full of the hot buzzwords of the day.

orky56 16y ago

Back to the days of which venture has the highest burn-through rate!

toddmorey 16y ago

As someone else commented, Facebook could easily add a feature to show pictures from friends geotagged with your current location. (Not a perfect replacement but a lot of the magic.) Apple also appears to be getting aggressive in this space with the new version of mobile me. Color has an interesting vision, but I think traction as a photo sharing add-on is going to be tough once the social network and the mobile device maker get into the same exact business.

bhousel 16y ago
What is far more likely is for Color to try to get themselves acquired by Facebook. If this is their real company strategy, the $41M investment actually makes sense.
- jamesmcintyre 16y ago
  that's exactly what I was thinking. I see this as being a very novel concept that if reaches a certain threshold of brand-awareness and good design could be a perfect acquisition target because merely replicating the feature-set would be like Google Video before Google acquired YouTube (it wouldn't be about the technical capability as much as the culture and community around the novel concept).
  - bhousel 16y ago
    Perhaps we're seeing the start of something new.. B2C = Business to consumer B2B = Business to business B2A = Business to acquisition?
    - jsnell 16y ago
      Building to flip is hardly a new trend.
      - bhousel 16y ago
        True, but I just gave it a new acronym :) Edit: I'd like to clarify that the business model I'm suggesting feels different somehow. Yes people have built companies to flip before, but their valuation was still based on what they do as a company. If what I am suggesting is true, Color's valuation is based on potential shares in the company that it's being flipped to. These VCs are essentially investing in Facebook, pre-IPO (set for 2012) without going through Goldman's special purpose vehicle, and without dealing with the SEC's 500 shareholder regulations. If true, that would make this Color investment a very clever hack.

techiferous 16y ago

What about the popularity of the lean startup approach? The focus on data and customers tends to keep those startups real. Shouldn't this mitigate some tendency toward a bubble?

yannickmahe 16y ago

What I don't get, economically speaking, is how we can both be in a bubble and in a barely recovering economy. In other words, how do these angels and VCs still have that much money to invest in such companies?

futuremint 16y ago
Most VC's are backed by enormous pension funds and/or other group retirement vehicles. This is how they can afford to bet large sums of money on multiple companies with an expected payoff of only 1 in 10 companies on long time frames. The pension isn't using that money (right now anyway), so the VC is free to do with it what they want, and in the end the money comes back to the pension in multiples. At least this is my understanding talking to an actual VC (not in a fund-raising situation, just casually).
tyng 16y ago
Ever heard of the term "two-speed economy"? It's happening right now on a much larger scale in Australia.
- jacques_chester 16y ago
  Indeed. Today in The Australian there was a story about laundry hands on offshore rigs being paid ~$420k. http://www.theaustralian.com.au/national-affairs/laundry-staff-on-420k-a-year/story-fn59niix-1226027697866 http://www.theaustralian.com.au/national-affairs/laundry-sta...
adaml_623 16y ago
Pay attention and you'll see that the rich have been getting richer even with the recession. They need investment opportunites and investing in real estate probably isn't popular. Hence angel funds have tons of money to throw around.

bhurt 16y ago

One reason I know we're not in a bubble: because everyone is saying we're in a bubble. For you young whippersnappers who were too young to remember the 90's, a bubble is a manifestation of irrational exuberance- with (almost) everyone saying it's a whole new market, it doesn't matter how much the thing costs it's worth it to buy it because it's price is just going to keep going up up up, so do whatever you need to do to buy in now, because the longer you wait, the less you make. In other words- it's a bubble when everyone is saying it's not a bubble. But if everyone is saying it IS a bubble, then it's not a bubble. There is a difference between a healthy (or at least "not on death's doorstop") economy and a bubble.

trotsky 16y ago

Make no mistake, a big factor in the creation / encouragement of recent bubbles has been super easy monetary policy that provides cheap and easy credit. In '00 we had a market crash after a dramatic run up of stocks in general and tech in specific. In 1998-1999 rates were low and credit was easily available [1]. As we led up to the millennium changeover ("Y2K") unprecedented amounts of short term capital were made available to banks and other institutions to allow them to weather any run on banks that might occur [2]. This money made it out the the markets and proceeded to whip them into something that was similar to a drug fueled frenzy: the nasdaq has never come close to those levels again. Alan Greenspan later noted that he believed his actions played an important role in the boom/bust. Once the fed windows closed for Y2K and interest rates were pulled upwards quickly all the money disappeared. Coincidence? After the dot.com bust targeted rates were lowered dramatically to attempt to smooth out the markets. Check out this chart of historical fed funds rates as it is really easy to spot the cycles [3]. The next bubble was in housing, and predictably it began to burst when interest rates were raised again. Look at that chart again [3]. The last couple of years have seen the lowest interest rates that have ever been available since the chart started more than 50 years ago. They have been approximately 0 for some time. In addition, the quantitative easing programs that the fed has engaged in (currently, QE2 composed of $600BN worth of treasury debt purchases) has left monetary policy so easy that if it were a woman the village would be talking. I've heard some confusion about how this money makes it into the markets. It's really quite simple. Many people and organizations who would normally put some of their money into safe debt like treasuries decide not to because they can't make any money off of it and they are concerned about the effects of inflation. This causes them to look for better investments that will have a chance of returning something decent. The explosion of angels in SV is directly related to this process - these geeks, unable to make a good return in some traditional markets switched to making private investments. If more money comes into a sector, valuations will naturally rise and the quality of the companies funded will likely fall (or at least that seems reasonable to me). QE2 is scheduled to end June 30th, 2011. Unless it is followed by a "QE3" (which there is probably a strong chance of) monetary supply will contract and interest rates will rise. At some point fed target rates will need to rise as a response to current growing inflation in the commodity markets and the retail increases in food and gasoline. Once the fed signals that the party is over, a ton of this money is going to run for the exits [4]. Don't expect to be able to close your next round unless you're of stellar quality or can hold out for 2-3 years. Or at least, that's one version of it. Of course, no one whose business relies on the expansion of public and private equity prices will explain this to you. The reasons for that should be relatively obvious. [NOTE: I am not an economist. I wasn't classically schooled in this stuff. I'm also not a tea partier nor do I have any particular political axe to grind here. I am just a coder who has been watching carefully since the dot-com crash when I took a very big haircut. Take it all for what it's worth] [1] https://secure.wikimedia.org/wikipedia/en/wiki/Dot_com_bubble#Bubble_growth https://secure.wikimedia.org/wikipedia/en/wiki/Dot_com_bubbl... [2] http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000scX http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id... [3] https://secure.wikimedia.org/wikipedia/en/wiki/Federal_funds_rate#Historical_rates https://secure.wikimedia.org/wikipedia/en/wiki/Federal_funds... [4] http://www.chrismartenson.com/martensonreport/coming-rout http://www.chrismartenson.com/martensonreport/coming-rout

dclaysmith 16y ago

Someone should track the Color Fund vs. the 43 participants in YCombinator W2011 class: Round Color's (err) round up to $43m. Then say that Milner's 150K was actually $1m with the same terms (convertible debt). You'd have 2 investments of $43m. Track follow up rounds for the 43 YC alumni and Color and see which pot grew the most.

kongqiu 16y ago
I know which side of that bet I'm taking :)

brackin 16y ago

.com's are no longer important, blekko, duckduckgo, drop.io and similar companies are proving this. It's not a big deal anymore. Every time I pitch Reward.io I get asked "how will It make money" so saying that profits don't matter anymore is a big understatement in my opinion. New business models are being developed and used to make money like Freemium and more subscription models. There will always be some startups with over valued valuations but the big thing is startups don't think they are invincible, with Digg and Myspace startups know they could die if they don't work hard and try and find a way to make money, even twitter which has gone almost too far recently with DickBar.

NxguiGui 16y ago

Don't follow the hype:) The way i see things is simple. X angel/vc knows how to play the game of taking some Y startup with non super unique idea/product and sell it to the Z highest bidder. When X invest money the most important thing is to make Big News. The Z are full with money to spend, they know that money need to circulate in order to multiply. They watch The News. They react. With money. On the other side of the line are X, they also watch the news, dream for success and want to be Zuckerbergs. And so on. From my perspective the smartest move is to connect demands of Z and availability of Y. Be a X or The News channel. But i am small, insignificant, away from first hand experience and everything that i think is away from The Game that is x,y,z. Thinks i can do with one million funding, if i have it, in terms of product development, team building, business development, are so old school and simple that are not interesting to put here at all. For me in this position the only valuable model is bootstrapping everything, test early in real world and iterate slowly and carefully in terms of technology and business model. But i deeply respect The Game of x,y and z, not so in direct meaning but as side effect. If all this money are 20% effective they push new technology to the limit and test the audience and give as a valuable lessons without risking money that we don't have. So if Z want to spend it's their decision to make. Our is to choose a) to be valuable Y or b) to be other letter in the equation making our own working function, with our own proven methods and variables:)

wat55 16y ago

Sorry, but the U.S. economy is a $14 trillion economy. Anyone who says we're in a bubble based on the aggregate Silicon Valley venture capital funding in the last year is getting ahead of themselves. Before you lecture us on a bubble, try to understand some basics on the U.S. economy.

sharonpaul 16y ago
I am commenting from the perspective of someone who is not in the US. Currently from the Asian region (excluding China), valuations are no where near that of the US. In Singapore alone, even with for a startup with vast customer based overseas is being acquired for only $10million. Yet, that $10million acquisition is more than enough to make the startup a superstar in our ecosystem. Perhaps this bubble is only present in the states, but elsewhere in the world, valuations are still reasonable.

mendable 16y ago

Asking the wrong question? What about asking, "How has taking this amount of funding helped this business?" Strategically, this much funding through all of the controversy it has generated, will guarantee this company/brand gets in front of nearly every early adopter over the next couple of weeks. It will drive hundreds of thousands of people to try it out. And that's before they've spent a penny of it. Loads of Posts on HN alone excitedly linking to the app on Android etc (one on the front page right now). After that, it will sink or swim on it's own merit. Would that have happened if they hadn't taken this funding? No. It would have had 5 minutes on TechCrunch, and then been forgotten about because it may not have been remarkable. Now all they need to do is implement a business model / some way to make money from it so their per-user revenue exceeds their cost of user acquisition, and use the remaining $38,000,000 as a marketing budget to spread it to everyone else. Profit.

kovar 16y ago
So, of the $41M, $3M goes to technologists and $38M goes to ad agencies? Hmmmm....

kia 16y ago

jacquesm really added ads to his site.

sdfghtrjyt 16y ago

ONLINE STORE: ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== Air jordan(1-24)shoes $30 Handbags(Coach l v f e n d i d&g) $35 Tshirts (Polo ,ed hardy,lacoste) $15 Jean(True Religion,ed hardy,coogi) $30 Sunglasses(Oakey,coach,gucci,A r m a i n i) $15 New era cap $12 Bikini (Ed hardy,polo) $20 accept paypal and free shipping ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )==== ====== ( http://www.fullmalls.com http://www.fullmalls.com )====

joelhooks 16y ago

This is a typical business cycle[1]. Easy credit, low interests rates, no incentive to save. [1] http://en.wikipedia.org/wiki/Austrian_business_cycle_theory http://en.wikipedia.org/wiki/Austrian_business_cycle_theory

fastviper 16y ago

TL;DR: bubble is intentionally blown, so that certain people earn more money Pumping bubble is intentional. Financial world knows and uses this technique for years. They KNOW we have a bubble and THEY pump it up. They earn money on stocks rising while bubble rises. The more they invest, the more people come to them with the money (for investment). They earn money on those people (commissions, investment credits, accounts, personal advisory). And as more and more money pours from the sky, the market rises. And they earn on stock rising. Suckers (commoners like we) believe that they can catch a train with next Facebook and sell houses or use life savings in hope for a fortune. And financial world earns. At the proper moment leaders of this mess bail out and we have a "crisis". Most people decide to invest too late (for example now it's much too late) and also bail out MUCH too late (after few hours or days from bubble blowout). But those managers and capital owners.. People cry, media report suicides and they just are buying another Ferrari and houses in the Canarian/Carribean. They smoke a cigar, drink whiskey and looking at the sky think: 'suckers, so long till next bubble'. Works like charm for years. So sad that for example my country's currency ex ratio and stock exchange is so vulnerable to this. Financial managers are not stupid. They are pragmatically cynical.

frederickcook 16y ago

Best summary of bubble/non-bubble debate I've read yet: [Are we in a bubble?] “Maybe,” says Naval, “Certainly valuations are creepy up quickly in all stages of deals. On the other hand, 10 years ago when we all felt like this last time the total market size for any company was at maximum 100 million potential users. Now we’re in the billions of users. Facebook connections alone bring 500 million, Twitter 200 million. 10 years ago we only connected for brief periods of time when we were at our PCs. Now we’re connected to apps all the time, everywhere we go. So maybe there’s a bubble. It’s hard to say. But we’re also looking at unprecedented opportunity.” - http://www.bothsidesofthetable.com/2011/03/22/the-magic-midnight-mind-meld/ http://www.bothsidesofthetable.com/2011/03/22/the-magic-midn...

svrocks 16y ago

We're not really in a bubble until Color.com (NSDQ: COLR) IPOs at a $500MM valuation and quadruples on its first day of trading. And then we're not REALLY in a bubble until Air.com, the leader in the social breathing space IPOs at twice that.

thedaveoflife 16y ago

relavent link to his point about domain names: wallgreens buys drugstore.com for 409M. http://dealbook.nytimes.com/2011/03/24/walgreens-to-buy-drugstore-com/ http://dealbook.nytimes.com/2011/03/24/walgreens-to-buy-drug...

ohashi 16y ago

I think the domain name argument is bunk. The domain market isn't 'hot' again by any means. In fact it hasn't recovered from peaking in 2007-2008.

Kilimanjaro 16y ago

So flickr goes mobile, gets funding, is sold for some billions, then a decade later it is dumped for a handful of millions? The lesson here is not to blame the idea guys, they will profit from it dearly. Or blame the initial and subsequent investors all the way up to the (ponzi) pyramid, they will profit too. Or even blame the guy who signed the deal when bigCorp bought them, he got his cut under the table too. Blame the poor souls who own shares of bigCorp for not enforcing accountability in their C*Os spending money left and right chasing the next bubble.

evo_9 16y ago

From Colo[u]r.com: "Think fast! Find someone. Take pictures together. Party. Play date. Lunch? Simultaneously use multiple iPhones and Androids to capture photos, videos, and conversations into a group album. There's no attaching, uploading, or friending to do. Share together in a new, moving social network. Just look around."

kovar 16y ago
I wonder if encouraging people to digitally record everyone around them will lead to legal troubles at some point? Back in the day when I shot film, I'd often get the subject to sign a model release. Society and technology have changed a lot, but if we're going to monetize something like Color, the people whose images appear may want some of that money.

grellas 16y ago

I guess it is a matter of terminology but I have to disagree on this one. A bubble is all-pervasive and extreme. It represents a systematic investment mania where everything becomes surreal. People sell vast tracts of land for a prized tulip. Junk companies with nothing to offer but a vague concept about revolutionizing how this or that will be done owing to some new phenomenon such as the internet make serial stock offerings to the public and get hundreds of millions for a modest percent of their unproven company. Lenders pile on with countless real estate loans to unqualified borrowers secure in the belief that what are really worthless loans will make them huge profits because they can be packaged and disposed of through artificial securitized instruments and because housing prices will continue rise broadly for endless periods. All this begins to occur in endless and ever-expanding streams until, in the end, large numbers of people are sucked into the vortex. In such cases, broad markets affecting an entire society are sent into a frenzy by which average people start both to get rich quick and to want to get rich quick. Large numbers of people leap in, therefore, in the hope of making fast money and abandon their common sense in the process. And when things go bust, this has a major systemic effect on the broader economy. A stock market that had reached stratospheric heights loses 70% of its value. A real estate market that had become so pricey as to make housing unaffordable for average buyers plummets to the depths, taking down people's savings en masse. The current phenomenon represented by high valuations in parts of the startup world is more transient and limited. It has not affected the broader society at all, only an insular investment community. If it fell apart today in toto, it would leave a trail of victims within the VC and angel communities but would be felt scarcely at all in the broader economy, or at least would likely have no systemic impact. Viewed from the standpoint of the broader society, I think what we are looking at here is a speculative frenzy affecting a comparatively narrow asset class. The prices of some startups have increased considerably. The prices of companies generally in the business world remain moderate, if not depressed. Is it a pricing frenzy within a particular segment of an asset class? Probably. Is it a bubble? No. Or at least not by historic definitions. Again, I wouldn't disagree with a single specific point made in this piece, and the author as usual makes some astute observations. I would disagree about the terminology, though, and would say that we should reserve use of the term "bubble" for the sorts of massively dislocating events that it historically has come to represent.

16y ago

deleted 16y ago

[deleted]

kirbman89 16y ago

Bubble Smubble. This bubble has a long ways to go before it pops. We're coming out of a recession! We have a few years left before we should be concerned.

jbooth 16y ago

So, at first everyone criticizes these guys for being on the wrong side of the chicken-egg problem, then everyone says they raised too much money and are being too ostentatious. Seems like they're attacking the chicken-egg problem in the easiest way, to me, the domain name and big dollar shine on everything make them look more credible and established. And they have enough runway to focus on product for the first few years while growing the userbase without having to monetize immediately. Could still flop a million ways, of course. It just seems like going all-in could actually be a viable way to attack emerging social networky markets.

antidaily 16y ago

41 million (and growing): The number of views for Rebecca Black's "Friday" video on YouTube: http://www.youtube.com/watch?v=CD2LRROpph0 http://www.youtube.com/watch?v=CD2LRROpph0

jacques_chester 16y ago
I would not have paid $1 to view it.

Tycho 16y ago

The previous bubble took 5 years to form and about 2 months to go 'pop'. I'm not sure if that timetable is trustworthy, but we definitely seem to be accelerating along the curve. Just thinking aloud here, but how on earth would you make a trustworthy timetable out of that observation? What do you measure? Economy was size A in year Y2K, technological faciliation was a level B, there were C people involved directly with the market; now the economy is size X, tech is level Y, and Z people are at the table... like why would you think one previous bubble was in some way proportional to a present one? One last thing, what to make of Max Andreeson's pet theory that there never was a real dotcom 'bubble' - that a few companies were ridiculously overvalued but overall most were ok and in fact more investment should have happened (in a more diversified manner)?

beeeph 16y ago

When a tech bubble pops, how does it affect a funded startup compared to a bootstrapped startup? I'm relatively new to the startup world, but as I understand it, startups that need funding are generally the only one's negatively affected when the bubble pops since funding becomes more scarce. If so, wouldn't that benefit the bootstrappers?

sdizdar 16y ago

Not sure if this particular investment can be called as a sign of a bubble. Social networks, locality, mobile, and things are still new and unknown. But there is a huge potential. There will be soon 2B people on the earth with constant (mobile) connection to the internet. In order to make FourSquare clone, you don't need a lot of investment for development but you need a LOT of money to acquire users and become a player in that space. However, the assumption is that there will be only few players and that is why there is a need for these kind of bold investment moves. I disagree. The system will become even more fragmented, democratized, and complex with many unknowns, so classical ways of getting market share will not work. In other words, even with 41M of investment, the company will not be able to fight against some weird and original apps / social network or even coupon buying system.

atrevisan 16y ago

Typically those kinds of things would happen once every year or so, twitter (I still don't fully grok their business model), facebook and so on. Don't understand Twitter's business model? Promoted tweets have the ability to become AdWords for social. Millions of pieces of content are shared everyday giving insight into user's pleasures, dislikes, and lifestyle. This user data, when analyzed, has immense value for companies interested in purchasing. That information is worth a ton. Bubble or no bubble, I sure grok their business model.

davidmathers 16y ago

As the great philosopher Inigo Montoya once said: "You keep using that word..." Let's talk about this chart for a second: http://www.google.com//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1300998901448&chddm=1394503&chls=IntervalBasedLine&q=INDEXSP:.INX&ntsp=0 http://www.google.com//finance?chdnp=1&chdd=1&chds=1... Ok, see that 4000% increase in 18 months? That's what a bubble looks like. Now, please point out to me where on the graph it made more sense to invest your retirement money in the S&P 500 rather than Amazon. Wait, you mean pets.com, not amazon.com? Fair enough. But now I'm not sure what your argument is. That color.com is going to fail and the investor are going to lose all their money? That is what you're saying right? Because if you're saying they're taking a large risk that has a very small chance of paying off then you're saying nothing. That's what investors do. That's what makes us (as a society) all rich. If your argument is that capital is being misallocated then you have to say why and where the capital should be allocated. Which brings us to what is actually a bubble and not just people with lots of money taking big risks that may not pay off: 1. capital being invested by (otherwise) non-investors 2. who can't afford to lose 3. who have come to believe, with certainty, that they can't lose That was the case in both the stock bubble and real estate bubble. It's not the case now. I guess the headline "valuations are unrealistically high" wouldn't generate as much heat and would require a coherent defense.

jeremymusighi 16y ago

Nice touch writing out the full "$41,000,000" rather than just "$41M". Definitely makes it look like more. Although I don't disagree that the size of the investment seems unjustified.

labanux 16y ago

Yes we are..