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startup valuations and tech industry
employment rates continue to grow the
potential for another tech bubble looms
in the future welcome to watchmojo.com
down 10 crucial facts you should know
about the potential tech bubble number
10 what is an economic bubble an
economic bubble is a period at which
point the values of assets are
considerably greater than their
intrinsic value and they are traded at
these prices generally speaking such a
period is confirmed when the market
subsequently drops prices which leads to
a correction and industry as well as a
drop in consumer and investor confidence
the first recorded economic or
speculative bubble occurred during the
Dutch tulip mania in the 1630s
throughout this period the value of
tulip bulbs rose and then fell sharply
and at one point was 10 times the annual
salary of a skilled craftsman the
problem with economic bubbles is that
they’re nearly impossible to predict and
only after the dust has settled are
important markers and indicators of an
impending bubble discovered number 9
what was the dot-com bubble the dot-com
bubble occurred primarily between 1997
and 2000 during which industry stock
prices rose and fell dramatically and
resulted in the collapse of the internet
sector on the stock market the bubble
was a result of the meteoric rise of
dot-com stock prices as venture
capitalists heavily invested in
companies that had little to no profit
with only the expectation of future
revenue in five years the value of the
Nasdaq Composite which many tech stocks
call home rapidly grew from 1,000 points
to over 5,000 by the year 2000 the
bubble burst on March 11 2007 reaction
by sinking the Nasdaq triggering a large
volume of company bankruptcies a slew of
high profile lawsuits and eventually a
full US economic recession number 8 what
was the aftermath the resulting stock
market crash from 2000 to 2002 led to a
drastic loss of over five trillion in
the mark
value of industry companies furthermore
the value of the NASDAQ quickly sunk
beginning in March 2000 and within a
month nearly a trillion dollars worth of
stock value had disappeared let me go
back what is it I can’t wait I can’t
wait I can’t wait what is it iguana
large companies began to fold such as
pets calm with others declaring
bankruptcy amid allegations of illegal
accounting practices leading to an
exaggeration of yearly profits the
events of September 11th in 2001 further
intensified the stock market drop by the
end of 2004 over 50% of the dot-com
companies had gone bankrupt number 7
what changes were made as a result of
the dot-com bubble numerous changes were
instilled this included more stringent
standards by which a company could
launch an initial public offering as
well as more restrictions on investment
bankers of research analysts enacted on
July 30th 2002 the sarbanes-oxley Act or
Sox is a united states law that enhanced
the responsibilities of a public
corporations Board of Directors
augmented criminal penalties for
retaliation against whistleblowers and
the failure to certify corporate
financial records what’s more an
agreement was reached on April 28 2003
titled the global settlement it revolved
around the issue of conflict of interest
within investment firms the agreement
was settled between the SEC NASD NY SE
and ten of the largest US financial
institutions and required that they
literally insulate and separate their
banking and analysis departments this
was done in order to prevent the abuse
that had occurred from the pressure
investment bankers placed on their
analysts to provide falsified favorable
portfolio results number six what is a
start-up a start-up is the term given to
a newly created company that is in a
rapid process of development research
innovation and scalability modern
startups are typically characterized by
their low bootstrap costs dependency on
private equity and high rate for
potential return on investment while
having a relatively small rate of
success examples of modern-day
successful startups range from the
popular and well
such as uber and Pinterest to the
obscure yet massively profitable
Palantir technologies a software company
that specializes in data analysis and
has even had clients like the CIA and
FBI this type of business model has bled
into corporate culture instilling a
casual attitude that promotes efficiency
by removing environmental stressors in
the office setting companies such as
Google have deliberately cultivated a
relaxed and enriched work environment in
order to attract the best and brightest
talent from startups there is no set
date at which point a company ceases to
be labeled a start-up but most of these
businesses and their startup phase when
they reach milestones such as an
acquisition by a larger firm a large
employee base considerable revenue or an
initial public offering number five who
invest in startups startups can find
funding from multiple sources including
venture capital firms angel investors
seed funds and crowdfunding these
sources of funding are important at
different levels of the startup growth
phase at the beginning it is typically
angel investors seed funds or
crowdfunding websites that provide the
initial funding companies such as Y
Combinator are known to fund hundreds of
startups by providing seed money that
amounts to about one hundred and twenty
thousand dollars in total this is known
as the seed round once a company has
gained traction and is generating
revenue it begins its series around a
more aggressive route of funding whereby
venture firms may provide significant
funding in the range of two to ten
million dollars in exchange for a
portion of the company this leads to
Series B C and D rounds of funding
before the company eventually launches
the initial public offering number four
what is an IPO the acronym IPO stands
for the term initial public offering a
process by which a private company
becomes public by issuing shares of
stock in their company to institutional
investors which in turn are sold to the
general public for the first time the
first recorded modern IPO occurred in
March 1602 when the Dutch East India
Company offered its shares to the public
an IPO can be a huge asset to a company
as it can generate a massive influx of
revenue give easier access to capital
and
Cree’s exposure and brand by contrast an
IPO can lead to an increase in marketing
accounting and legal costs and an
overall loss of control due to new
shareholders it would also allow the
public and competitors to gain access of
company financials and policy the
current IPO process in the United States
is overseen by the United States
Securities and Exchange Commission and
in the United Kingdom it is regulated by
the UK listing authority number three
how our startups valued evaluation of a
startups worth is extremely important as
it will dictate the level of funding an
angel investor or a venture capital firm
is willing to invest in the company
valuations are notoriously hard to
calculate as most startups have little
history revenue or earnings
this leads prospective investors to
calculate valuations based on similar
industry valuations and the level of
competition for start-up investment
based on the economy in booming economic
times there will be larger company
valuations as competition to invest in
the best startup is higher for example
in 2013 there were only 38 tech startups
valued at over 1 billion dollars also
known as unicorns yet as of May 2015
there were over a hundred not to mention
over a handful of deca corns companies
that are valued at over 10 billion such
as uber Dropbox
Naomi and Airbnb number two our startups
being overvalued as company valuations
continue to grow at a staggering pace
many in the industry fear that they’re
being pushed by external factors such as
low interest rates and investors fear of
missing out and a need for higher
returns as of mid May 2015
uber an American international
transportation network company is
pushing for another round of funding in
the territory of two billion dollars
expectations are that this round would
push the company to a valuation of more
than 50 billion which would make it the
highest valued venture-backed startup in
history that being said there are many
industry investors and experts who
believe that startups are not overvalued
for example according to Sam almond
president of Y Combinator giving a
start-up and easier access to a large
cash flow can kill a good company
number one is there another tech bubble
brewing the question of whether there is
another tech bubble brewing is a touchy
one as the 2,000 comm bubble still
weighs heavily on investors minds thanks
to the dot-com bubble there are stricter
regulations governing IPOs and
investments making it harder for Shapley
constructed companies to go public
however according to entrepreneur Mark
Cuban an American investor and owner of
the NBA’s Dallas Mavericks we are in a
bubble and actually headed towards its
imminent burst while stock markets may
be affected
unlike the 2000 calm bubble he argues
that angel investments also will be
which is an even bigger problem startup
valuations and tech industry employment
rates continue to grow yet whether our
world is actually in another tech bubble
remains to be seen
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