Courtesy of Mish.
Venture capital risktaking and burn rates on cash are at levels that exceed the technology bubble in 1999. Companies that haven’t made a dime, and perhaps never will, have valuations of $10 billion more.
Curiously, it’ venture capitalist Bill Gurley who Sounds Alarm on Startup Investing in an interview with the Wall Street Journal.
WSJ: Mr. Gurley, who often voices his opinions on his blog, Above the Crowd, sat down with The Wall Street Journal as part of a Journal event series called “Tech Under the Hood.” The investor in Uber, Zillow, OpenTable and other Web startups spoke on a wide range of topics. What follows is an edited excerpt of a conversation specifically about potential cracks in the tech-startup investing scene.
Mr. Gurley: Every incremental day that goes past I have this feeling a little bit more. I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since ‘’99. In some ways less silly than ’99 and in other ways more silly than in ’99. I love the Buffett quote [“Be fearful when others are greedy and greedy when others are fearful”] because it lays it out.
And I guarantee you two things: One, the average burn rate at the average venture-backed company in Silicon Valley is at an all-time high since ’99 and maybe in many industries higher than in ’99. And two, more humans in Silicon Valley are working for money-losing companies than have been in 15 years, and that’s a form of discounted risk.
In ’01 or ’09, you just wouldn’t go take a job at a company that’s burning $4 million a month. Today everyone does it without thinking.
Bubble Risk
The Guardian picks up on the story in Leading tech investors warn of bubble risk ‘unprecedented since 1999’.
Two of the world’s leading tech investors have warned the new wave of tech companies and their backers are taking on risk and burning through cash at rates unseen since 1999 when the “dotcom bubble” burst.
Bill Gurley, partner at Silicon Valley-based investor Benchmark, sounded the horn of doom on Monday warning that “Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now.”
His comments were backed up Tuesday by Fred Wilson, the New York-based co-founder of Union Square Ventures who has backed companies including Twitter, Tumblr and Zynga.
Burn rates – the amount of money a startup is spending – are “sky high all over the US startup sector right now”, he wrote in a blog post [Burn Baby Burn].
“We have multiple portfolio companies burning multiple millions of dollars a month. Thankfully its not our entire portfolio. But it is more than I’d like and more than I’m personally comfortable with,” he wrote.
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