20 VC 029 The Potential Upside To A Technology Bubble with TechCrunch's Brandon Lipman

Harry Stebbings hosts Brandon Lippman on the 20 minutes VC to discuss the possibility of a tech bubble and its potential impacts. Lippman, who wrote an article for TechCrunch and co-founded 3DLT, likens a tech bubble to a forest fire, suggesting that while it may cause immediate damage, it ultimately clears the way for new growth and stronger companies. The discussion touches on the shift in seed and series funding trends, with fewer but larger seed rounds and more stable series C rounds. They also consider the late-stage financing trend, where companies like Uber and Lyft delay IPOs in favor of private capital, potentially indicating a shift in business strategy rather than a bubble. The conversation concludes with insights into the IPO market and the future of tech companies, particularly in fintech and SaaS, amidst a speculative bubble.

• Harry Stebbings introduces episode 29 of the 20 minutes VC.
• The episode will discuss the potential of a tech bubble, its implications, and mitigation strategies.
• Guest Brandon Lippman, who wrote an article for TechCrunch and is the co-founder of three DLT, joins the discussion.
• Listeners are invited to win books and resources by leaving a review on iTunes and emailing Harry.

Hello, and welcome to episode 29 of the 20 minutes VC with Harry Stebbings. Now, today's show is a very special show as we will be diving into whether a potential tech bubble is looming, why, and what can be done to mitigate the effects.

The quote sets the stage for the episode's focus on the tech bubble, indicating an in-depth discussion on the subject.

• Brandon Lippman wrote an article for TechCrunch discussing the potential upside of a technology bubble.
• The article compares a tech bubble to a forest fire in the Everglades, suggesting that it may be necessary for growth.
• Forest fires lead to new growth by turning trees and underbrush to ash, which fertilizes the soil for future growth.
• The tech industry can similarly benefit from a bubble by weeding out weaker companies, allowing stronger ones to prevail and fostering new industry development.

Now, you recently wrote a fantastic article in TechCrunch about the topic of the moment, are we in a bubble or not? In the article, you compared a bubble to a forest fire.

The quote introduces Brandon Lippman's article, which provides a metaphorical comparison of a tech bubble to a natural forest fire.

• Chris Sacca, a notable figure in the tech industry, expressed excitement for the bubble to burst.
• Sacca believes that a burst would rid the industry of "fake personalities" and leave only those with a genuine passion for technology.
• The idea that a bubble could have positive effects by filtering out less committed individuals resonated with Lippman.

I was listening to an interview, actually, with Chris Sacker the other day, and he said that he couldn't wait for the bubble to burst and it would eventually lead to all the fake personalities in the valley, maybe your business school graduates who don't necessarily have the passion for the technology that the real technology enthusiasts do.

The quote relays Chris Sacca's anticipation for a bubble burst as a means to purify the tech industry.

• Lippman suggests that there are benefits to a potential bubble and that past bubbles, like the 2000 dot-com bubble, have provided valuable lessons.
• The experiences and knowledge gained from previous bubbles have informed current practices for venture capitalists and entrepreneurs.

And I think that in the long term perspective, if we look from 2000 to now, I think that the 2000 bubble or the.com bubble has given us so much learnings that VCs as well as entrepreneurs are taking on in the age we're at now.

The quote highlights the long-term benefits of learning from past bubbles, emphasizing the progression and adaptation of the tech industry.

• Chris Sacca pointed out that many of today's tech entrepreneurs were too young to remember the 2000 bubble.
• There is a concern that recent college graduates may not have learned from the past bubble due to their age.
• Lippman sees it as a responsibility to educate and impart the lessons from previous bubbles to the current generation of entrepreneurs.

Do you see that as a possible problem in the fact that they maybe haven't learned?

The quote raises the issue of a generational gap in the collective memory of past tech bubbles and the potential lack of learning from those events.

• Entrepreneurs should learn from history to understand the future and their current position.
• Reflecting on past events, such as the 2000 bubble, can provide valuable lessons.
• Founders have the responsibility to study historical business events to avoid repeating mistakes.

"as founders and entrepreneurs to look back at history the same way that historians should look back at history, to understand the future and understand how we got to where we are."

This quote underscores the importance of historical perspective for founders, suggesting that understanding past business cycles and events can inform future decisions and strategies.

• Seed deal numbers have decreased, but the funding amounts in the rounds have increased.
• Companies may need more capital to progress in their early stages due to higher capital intensity and burn rates.
• The difficulty of raising seed rounds has increased, potentially leading to more stability in the number of companies advancing to Series A.

"I think the amount of seed rounds are decreasing, but the amount of seed funding in the rounds themselves is increasing."

This observation indicates a shift in early-stage financing, where fewer companies receive seed funding, but the amounts they receive are larger, suggesting a focus on more developed or promising startups.

• Series C rounds have seen a modest increase of 6%, while venture rounds have increased by 49%.
• Series C and venture rounds appear more stable compared to Series A and seed rounds.
• Stability may be due to consistent expectations around product-market fit in later-stage funding rounds.

"I think that that's stable. When I look at V rounds as well, they're increasing by 49%."

The quote suggests that later-stage funding rounds, such as Series C and venture rounds, are experiencing growth and stability, contrasting with the fluctuations in seed and Series A rounds.

• Venture capitalists may be placing more emphasis on valuation and the value they can add to a startup.
• The trend might be moving away from the "scatter gun" or lean VC model of investing in many startups.
• Investors are becoming more selective, focusing on fewer deals to ensure they can support successful companies.

"Well, I think that the quality of investments, I think that there's two things I find interesting is many venture capitalists putting a lot of emphasis on valuations."

This statement reflects a shift in the venture capital industry, where investors are prioritizing the quality of their investments and the potential value they can add, rather than simply aiming for a high number of investments.

• Harry Stebbings discusses the long-term perspective on venture capital, particularly in relation to 500 startups.
• The focus in venture capital is not solely on unicorns (companies valued at over a billion dollars) but also on companies that demonstrate stable growth.
• Predicting which companies will achieve unicorn-level growth is challenging.

"It was extremely interesting to hear of how his view of venture capital is definitely more long term and he's still relatively in the beginning aspects of building up 500 startups."

This quote emphasizes the importance of a long-term view in venture capital and the recognition that building a successful venture portfolio, such as 500 startups, is an ongoing process.

• Brandon Lippman reacts to Scott Nolan's claim that burn rates are not significant and can accelerate progress.
• Lippman sees burn rates as a potential indicator of a company's capital efficiency.
• High burn rates suggest the need for more funding soon and potential capital inefficiency.

"So with Scott Nolan, he's obviously much smarter than I am. But the way I look at it, I do see breweries as a possible indicator of how capital efficient a company is being."

Lippman acknowledges Scott Nolan's expertise but maintains his stance that burn rates can be an indicator of how effectively a company is using its capital.

• The danger lies not in the size of the funding round but in the rate at which a company spends its capital.
• A mismatch between the burn rate and the size of the funding round can indicate capital inefficiency.

"I think that it's not about the round size, I think it's more about how quickly you're burning through the money."

This quote clarifies that the concern is not with large funding rounds per se but with the speed at which the raised capital is being expended, which can lead to inefficiency.

• Certain sectors, such as financial technology and banking, may continue to disrupt and thrive despite a bubble.
• SaaS (Software as a Service) companies are seen as likely to progress through a bubble due to their agile platforms and the consistent need for their services by large companies.

"I think the financial tech industry and the banking industry, we're starting to see some disruption there. And I think that's going to definitely continue as time goes on."

This quote suggests optimism for the fintech and banking industries' ability to innovate and potentially benefit from economic disruptions.

• Consumer tech is identified as a sector that might face difficulties if a tech bubble occurs.
• Startups in consumer tech often make premature assumptions and may lack proper product-market fit, which could lead to a decline during a bubble.

"I see consumer tech as an area where from a service level, I see there being a potential fluctuation or a difficulty, because a lot of these consumer tech startups are starting or making assumptions too early and potentially not having the product market fit that they think they have."

This quote expresses concern for the consumer tech sector, where companies may struggle due to early assumptions and a lack of product-market fit, which could be exacerbated by a bubble.

• The trend of companies raising later rounds of funding and delaying IPOs is not necessarily indicative of a bubble but reflects a shift in business strategy.
• Comparing Uber and Lyft's funding and valuations reveals differences in capital growth but not necessarily in overall growth.

"I don't necessarily think it suggests a bubble. I think it suggests a shift in the way that companies are run."

This quote implies that the trend towards later-stage funding and postponed IPOs may not signal a bubble but rather a strategic evolution in company management.

• There is a noted difference in valuation timelines and amounts for companies like Etsy and Slack.
• Etsy, a ten-year-old company, went public with a $3.5 billion valuation.
• Slack, a much younger two-year-old company, has a $2.8 billion valuation while still private.
• This indicates a shift in the way private companies are being valued and may suggest a deviation between private and public funding.

And then when you look at the recent IPO, this week of Etsy, they're a ten year old company and Slack is a two year old company and Slack is valued at $2.8 billion valuation, where Etsy is $3.5 billion valuation.

The quote compares the valuation and age of Etsy and Slack, highlighting the significant difference in their valuations despite the large difference in their ages, which may indicate a shift in the valuation process for private versus public companies.

• Late stage funding has been increasing, which may continue to displace traditional IPO exits for companies.
• The data from Mattermark's recent publication is used to analyze this trend.
• There is a possibility that the trend of increasing late stage funding will continue, but further data is desired for confirmation.

I think based on the data, when I see that late stage funding is increasing, at least in this last quarter, I would want more data around that. But I think that there's a definite possibility that trend continues.

The speaker expresses a belief that the trend of increasing late stage funding may continue, suggesting a potential shift in how companies approach exits, but also indicates a need for more data to confirm this trend.

• Both Meerkat and Periscope are competing in the live streaming space.
• Periscope has an advantage due to its acquisition by Twitter and the pre-existing relationship.
• There is a possibility for both platforms to succeed if Meerkat finds a new niche.
• The acquisition of Periscope before product launch is noteworthy and could be indicative of a tech bubble.

But I think that they both can win. But at this point, periscope does have a significant advantage.

The quote suggests that while both Meerkat and Periscope have potential, Periscope's association with Twitter gives it a significant competitive edge.

And Periscope were acquired pre product launch, weren't they?

This quote points out Periscope's acquisition by Twitter occurred before their product launch, which is an unusual and notable event in the tech industry.

• The speaker is excited about companies like Mattermark that provide data on venture capital.
• Companies with long-term missions and potential for large-scale growth are seen as likely to succeed in the long run.
• The focus is on companies that are not limited to small niche products.

One company, I would say Mattermark. I'm a big fan of them because the data that they're gathering, I think is extremely interesting and around venture capital...

The quote expresses the speaker's enthusiasm for Mattermark due to its role in gathering data on venture capital, indicating a belief in the value of comprehensive data for the tech industry's future.

• Resources mentioned in the episode will be listed on the blog for further exploration.
• Mattermark's publication is specifically recommended as a helpful resource in assessing whether the tech industry is entering a bubble.

Now for all the resources mentioned in today's episode with Brandon, head on over to our blog at WW Dot, thetentyminutevc.com.

The quote directs listeners to the blog where they can find all the resources discussed in the episode, emphasizing the availability of information for those interested in the topic of tech valuations and potential bubbles.