startup deck from business insider
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The State Of Startups (No, It’s Not A Bubble)
May 3, 2012
Henry Blodget CEO, Business Insider
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Henry Blodget Founder, CEO & Editor-in-Chief, Business Insider
Pascal-Emmanuel Gobry, Senior Analyst
Alex Cocotas, Analyst
We’ve launched a new industry intelligence service for executives and investors. More info at intelligence.businessinsider.com/
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For startups, money is oxygen…
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So here’s a quick look at the money flows…
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Overall VC fundings still trending down…
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Most VC money still going to “software”
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Today, “software” means “the Internet”
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VC Internet investments are still increasing
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And VC fundraising is ticking up, which means they’ll have more to invest…
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Angels like Internet, too, but they really love… healthcare!
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And how about “exits”?
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The tech IPO market is open, but still only for mature companies*
* The JOBS Act could begin to change this. Fingers crossed…
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VC-backed IPOs have recovered from crash, but still far from robust…
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The M&A market has recovered, but also still meh
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(By the way, there’s a good reason to sell your
company now…)
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TAXMAGEDDON!
(Big capital gains tax hike Jan. 1)*
* Unless Romney wins.
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So, how’s New York doing?
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New York VC is increasing!
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New York is the third largest VC region
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New York overtook Boston in deals last quarter
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And New York is No. 2 in Internet deals
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NYC now has a full financing ecosystem
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And a boatload of startups…
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So, is it a bubble?
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NO.
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In fact, calling today’s market a bubble is an insult to real bubbles!
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THIS is a bubble…
NASDAQ, 1991-2004
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THIS is a bubble… House Prices: 1976-2012
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Do you see a parabolic pattern now? NASDAQ: 1971-2012
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How about VCs? Are they going hog wild as in the 1990s? (Nope)
Total VC Investments By Quarter, 1995-2012
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Two important characteristics of ACTUAL bubbles…
• Sky-high valuations relative to fundamentals…
• Everyone justifying those prices by saying “It’s different this time.”
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Is everyone justifying today’s prices by saying:
“It’s different this
time?”
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No.
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They’re saying:
“Duh, what a bunch of morons, this is so
obviously a bubble.”
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And how about prices relative to
fundamentals?
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HOUSING BUBBLE: Price ratios spiked off the charts…
Price-To-Rent: 1983-2012
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STOCK BUBBLES: Price ratios (blue) spiked off the charts…
S&P PE: 1885-2012
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“But, but…
What about tech companies?”
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Let’s look at the hottest tech company
in the world…
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Apple’s PE ratio is ~15X and has been declining for years
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“But, but…
What about those RIDICULOUS IPOs?”
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You mean these IPOs?—they’re miles from “bubble”
4X Revenue
3X 2012E Revenue
5X Revenue
12X Revenue
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Yes, many thought Groupon and Zynga IPO prices too high… but
that’s what makes a market.
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“But, but…
What about…
INSTAGRAM???”
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$1 Billion for a company with 13
employees and NO REVENUE?!?!
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Well, let’s think about that….
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Last year something profound happened.
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Sales of smartphones blew past sales of PCs…
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The “dumbphone conversion cycle” is still in early phase
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In the future, the number of smartphones and tablets will DWARF the number of PCs
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The only “stupid” conclusion about mobile revolution is to dismiss it
as silly.
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Turns out Instagram is the perfect native smartphone app…
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Instagram to 50 million users in 1.5 years
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“But, but…
Instagram has NO REVENUE!!”
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Here’s what to say to people who say that…
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Really?
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Really???
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What about these other startups that initially had “NO REVENUE”?...
• Google • Facebook • Twitter • Every biotech company • Every car company • Every real-estate project • Every exploration company • And so on…
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To say a startup is worthless because it has “no revenue” is
moronic.
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Some other Facebook-Instagram considerations…
• Facebook sucks at mobile
• Instagram threatens a core Facebook service • Twitter, Google, et al, might buy Instagram
• Facebook is valued at $100 billion
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So, what was Mr. Zuckerberg’s logic?
“I can spend 1% of my company to buy the hottest startup in a massive sector that threatens my core business, eliminate a competitor, and make sure my competitors don’t get it first?”
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“Where do I sign?”
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The bottom line…
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This opportunity is MASSIVE.
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It’s not a bubble. It’s rational exuberance.
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But remember!
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Everything is cyclical
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All booms turn to busts
(Mobile will someday, too)
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Building great products and companies is hard
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Most ideas don’t work
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So don’t forget the golden rules of
financing…
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No one ever went broke because they
raised too much money
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Raise money when you can, not when you
have to
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Thank you!
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