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Bubbles, summits and realities

David McWilliams has a column in the Sunday Business Post today (sub required) which essentially calls out the internet sector as being a huge bubble about to burst. I don’t disagree with the existence of bubbles and cycles but a lot of his analysis is flat-out wrong.

Firstly, let’s be clear: yes, internet valuations are generally high at the moment. Is there some real underlying value? You tell me:

-Twitter went from zero to generating $600M (est for 2013) in three years.
-Supercell (mobile games) will generating about $750M this year with net margins of about 20-30%.
-Facebook’s Q3 numbers were $2.02B (revenue) and $425M (net income).

Do examples like this justify multiples? Time will tell. But clearly we’re not entirely dealing with ‘hipster companies that make no money yet are being bought and sold for millions”.

Is it “the bubble to beat all bubbles” because “more money has gone into it than any other similar episode”? Eh, no. There’s a lot less VC money than there used to be. A lot of pension funds (generally the biggest source of capital for VC firms) have stopped investing in the VC asset class. In short: there is not money pouring into the sector.

However, the angel investment scene has certainly exploded. Lots of small investments, lots of incubators. And of course Angel List. Is this a bubble? Maybe. But it’s certainly not comparable to the property bubble in Ireland: We don’t see banks setting up specific tech/startup investment funds aimed at retail investors. We don’t even see government budgets giving particular incentives to invest in startups (in fact it’s the opposite).

One of the real reasons that events like Web Summit feel like a bubble is because of the hype. As an industry (including the journalists who cover it), we’re simply better at self-promotion and general noise than virtually any other (note to Enda Kenny: this is why tech/internet tourism is more valuable than other kinds). It doesn’t always mean the money is flowing in the same volume though.

(Btw, huge props to Paddy, Daire and David for an incredible event and showing the world how nation-branding should be done)

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