Startup blood in the water

Startups for Dummies: Some of the numbers are boggling.

Hypothetical Example that could easily be real: company x is 'valued at 5-10 BILLION dollars'

me: neat, what is the revenue?
them: $0. Literally nothing, the vending machine in the corner makes more than we do. Our biggest revenue month so far was when a vendor missed a contract term and had to pay us a small kick-back.
me: hmmmm - soooo - how do you have a 5-10 billion dollar valuation?
them: easy, we have more than x-hundred million people who use our free app globally.
me: um, so if you start charging, how many leave?
them: we dunno.
me: and when you start advertising, how many leave?
them: we dunno.

They are probably looking to be acquired. For 5-10 BILLION.

In reply to WilD:

Her first big investor was a family friend who happened to be a partner in a BIG VC. so... once you have money.. people want to give you more money.

I want to believe that it wasn't some giant rip off scheme, I think it started out that way.. but believe that she was just keeping up apperances now. She's lucky the FDA hasn't thrown her ass in jail.

Robbie wrote: Startups for Dummies: Some of the numbers are boggling. Hypothetical Example that could easily be real: company x is 'valued at 5-10 BILLION dollars' me: neat, what is the revenue? them: $0. Literally nothing, the vending machine in the corner makes more than we do. Our biggest revenue month so far was when a vendor missed a contract term and had to pay us a small kick-back. me: hmmmm - soooo - how do you have a 5-10 billion dollar valuation? them: easy, we have more than x-hundred million people who use our free app globally. me: um, so if you start charging, how many leave? them: we dunno. me: and when you start advertising, how many leave? them: we dunno. They are probably looking to be acquired. For 5-10 BILLION.

Your example could not "easily" be real, any company with 100M+ users of a free app would be putting ads on it and getting significant revenue that way.

From what I can tell, you're actually pretty close to describing Pinterest -- they have around 100M users and an $11B valuation. They're privately held so GAAP revenue figures aren't available, but some leaked documents say they did $170M in revenue per year last year and are targeting $3B in 2018. If you assume a margin of 35% (which is what Facebook has, so isn't totally unreasonable if they execute well), then that's a billion dollars a year in earnings at that target. A P/E ratio of 11 is pretty cheap, all things considered.

The spectacular dot com failures happened because people perceived the internet as a land grab. The idea was that there was this huge market for buying stuff online, and if you could just be the first company there to build a user base and get the "noun.com" domain name then you'd be able to milk that user base for a long time and make up any losses you incurred to build it. As it turns out, the first mover advantage there was a whole lot less significant than a lot of people thought it was and this turned out not to be the case.

The social media companies are different in some significant ways. For one, they aren't selling stuff below cost. They may or may not be profitable, but they aren't buying bags of pet food for $20 and selling it on the Internet for $15 with free shipping like pets.com was. Social media companies can (at least in principle) grow their way out of a loss, whereas for pets.com if they increased their sales then they increased the loss that went with it. For another, social media networks have a significantly larger "network effect" than pet food does. Nobody is going to use a social media network unless their friends are also using it, and this means that a large user base is actually a real asset and something that it's worth spending money to get.

Now, obviously they aren't all going to succeed. There's only so much market for social media and there are a lot of companies out there competing for it. There are going to be winners and losers in this market, and there's no guarantee which company will be in which bucket. That's why that 11:1 P/E (2 years out) ratio is as low as it is -- if it were close to a sure thing then the ratio would be a whole lot higher. Hell, people may even decide that social media is stupid, so they may ALL fail. I wouldn't bet on it though, the Internet has a large appetite for pictures of cats and videos of Mustangs crashing. :)

Is there a recession coming? Of course there is, business is cyclical and we've been on an upswing for a while so there's a downswing coming in the not-too-distant future.

It seems like there is a lot of schadenfreude in this thread.

Yeah joking aside, I'm not sure why some of you seem so chuffed about this. Do you think all the hipsters are going to migrate over to corporate jobs where they can work in a cube for the next 35 years with their heads down? (Why would you want that to happen ??) Sorry but that economy's dead and gone, and good riddance. The startup/venture/individualist rapid boom-whatever cycle is how the world works now, and has for the last 15 years at least. Sure there's going to be downturns and hiccups but it's not going to change back.

It's fun to say "I told you so!!" but if you're under 40 you've spent more time in the "tech boom" economy than not, whether or not you realize it. :P

Meanwhile in more established corners of the tech world:

http://www.oregonlive.com/silicon-forest/index.ssf/2016/04/intel_planning_for_thousands_o_1.html

Stefan (Not Bruce) wrote: http://www.oregonlive.com/silicon-forest/index.ssf/2016/04/intel_planning_for_thousands_o_1.html

Intel has been in trouble for a while. They own the PC CPU market, but that market is shrinking, the mobile one is growing, and mobile is all about ARM.

Apple is quietly going through reductions.