Startup deck from Business Insider

The State Of Startups (No, It’s Not A Bubble)

May 3, 2012

Henry Blodget CEO, Business Insider

Henry Blodget Founder, CEO & Editor-in-Chief, Business Insider

Pascal-Emmanuel Gobry, Senior Analyst

Alex Cocotas, Analyst

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For startups, money is oxygen…

So here’s a quick look at the money flows…

Overall VC fundings still trending down…

Most VC money still going to “software”

Today, “software” means “the Internet”

VC Internet investments are still increasing

And VC fundraising is ticking up, which means they’ll have more to invest…

Angels like Internet, too, but they really love… healthcare!

And how about “exits”?

The tech IPO market is open, but still only for mature companies*

* The JOBS Act could begin to change this. Fingers crossed…

VC-backed IPOs have recovered from crash, but still far from robust…

The M&A market has recovered, but also still meh

(By the way, there’s a good reason to sell your

company now…)

TAXMAGEDDON!

(Big capital gains tax hike Jan. 1)*

* Unless Romney wins.

So, how’s New York doing?

New York VC is increasing!

New York is the third largest VC region

New York overtook Boston in deals last quarter

And New York is No. 2 in Internet deals

NYC now has a full financing ecosystem

And a boatload of startups…

So, is it a bubble?

NO.

In fact, calling today’s market a bubble is an insult to real bubbles!

THIS is a bubble…

NASDAQ, 1991-2004

THIS is a bubble… House Prices: 1976-2012

Do you see a parabolic pattern now? NASDAQ: 1971-2012

How about VCs? Are they going hog wild as in the 1990s? (Nope)

Total VC Investments By Quarter, 1995-2012

Two important characteristics of ACTUAL bubbles…

•  Sky-high valuations relative to fundamentals…

•  Everyone justifying those prices by saying “It’s different this time.”

Is everyone justifying today’s prices by saying:

“It’s different this

time?”

No.

They’re saying:

“Duh, what a bunch of morons, this is so

obviously a bubble.”

And how about prices relative to

fundamentals?

HOUSING BUBBLE: Price ratios spiked off the charts…

Price-To-Rent: 1983-2012

STOCK BUBBLES: Price ratios (blue) spiked off the charts…

S&P PE: 1885-2012

“But, but…

What about tech companies?”

Let’s look at the hottest tech company

in the world…

Apple’s PE ratio is ~15X and has been declining for years

“But, but…

What about those RIDICULOUS IPOs?”

You mean these IPOs?—they’re miles from “bubble”

4X Revenue

3X 2012E Revenue

5X Revenue

12X Revenue

Yes, many thought Groupon and Zynga IPO prices too high… but

that’s what makes a market.

“But, but…

What about…

INSTAGRAM???”

$1 Billion for a company with 13

employees and NO REVENUE?!?!

Well, let’s think about that….

Last year something profound happened.

Sales of smartphones blew past sales of PCs…

The “dumbphone conversion cycle” is still in early phase

In the future, the number of smartphones and tablets will DWARF the number of PCs

The only “stupid” conclusion about mobile revolution is to dismiss it

as silly.

Turns out Instagram is the perfect native smartphone app…

Instagram to 50 million users in 1.5 years

“But, but…

Instagram has NO REVENUE!!”

Here’s what to say to people who say that…

Really?

Really???

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…

To say a startup is worthless because it has “no revenue” is

moronic.

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

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?”

“Where do I sign?”

The bottom line…

This opportunity is MASSIVE.

It’s not a bubble. It’s rational exuberance.

But remember!

Everything is cyclical

All booms turn to busts

(Mobile will someday, too)

Building great products and companies is hard

Most ideas don’t work

So don’t forget the golden rules of

financing…

No one ever went broke because they

raised too much money

Raise money when you can, not when you

have to

Thank you!