Who's the next lucky punk to tell Zuck and Sergey that $3 billion just ain't cool enough? More to the point, is Snapchat's hubris a sign that the private and public tech markets are tasting bubblicious? Maybe a smidgeon.
But we aren't partying anywhere close to like it's 1999.
Let's look at a few comparisons. Take tech public offerings: It may feel like IPOs are floating out of Wall Street as often as ferry boats. But so far in 2013, we've had 36 high-tech IPOs, valued at $7.6 billion for all shares sold, versus the 228 high-tech companies that went public in 1999 to raise a cumulative $26.2 billion, according to Dealogic. And $1.8 billion of this year's tech IPO stock purchases was courtesy of Twitter's debut.
That doesn't mean we can't catapult into the red zone in a flash -- 1998's tech IPOs only numbered 60 before increasing 280 percent the next year. Furthermore, half of the current crop of IPOs isn't profitable but instead "geared for growth" -- or exchanging profits for market share à la Amazon.
Turning to established public tech names, there's no doubt they're flying high in 2013. Three of the four horsemen are on a tear, with Facebook up 73 percent, Amazon up 46 percent, and Google up 46 percent (Apple is down 2 percent). Find this ramp-up scary? Reality check: In 1999, Microsoft was up 68 percent on the year, Cisco was up 131 percent, the Ivy Global Science & Technology (mutual) Fund was up 123 percent, and Freemarkets was up 600 percent. Moreover, by the end of 1999, the 371 publically traded U.S. tech companies had a collective value of $1.3 trillion, or 8 percent of all American stock markets combined, according to Barron's.
Looking further upstream today, as Snapchat suggests, startup valuations are inflating faster than Silicon Valley residential real estate -- and we may indeed approach 1999 levels soon. The average seed-stage company with no revenue or track record can now command a $13 million pre-money valuation whereas the same company in 2010 would've taken $5 million.
Inflation is worse still for maturing startups in later stages. The pre-investment valuation for companies raising their Series B (third round, typically) of funding is about $80 million, according to Dow Jones VentureSource, a height not seen since -- wait for it -- 2000. "Late-stage private company valuations are at 1999-2000 levels," warns a senior exec at one of largest private equity firms in the country.
Unconventional economic indicators are pointing up too. Traffic on Highway 101 is beyond brutal; billboards are sprouting like facial hair; downtown San Francisco is a forest of cranes; and in the startup-strewn South Park neighborhood of San Francisco you can't even hear the barista tamping espresso grounds at Caffe Centro, it's so loud.
It's anybody's guess, but it may take another go-go year like 2013 to fully inflate another whopper like 1999. In the public markets, normal hardware valuations are offsetting booming valuations for software (SaaS especially) and Internet companies. One indicator to watch is how the market greets the next crop of big tech names: LendingClub, cloud storage firms Box and Dropbox, would-be Salesforce-killer SugarCRM, green-tech firm Opower, and marketing platform HubSpot. If there's a Pets.com in the bunch or if Snapchat suddenly files its Form S-1, start making for the exits.
Correction: This blog as originally posted misstated a company's earnings data. The article has been amended.
T. Trent Gegax, a former Newsweek correspondent, is president of The Gramercy Fund, a seed-stage investment partnership based in New York City, Minneapolis, and San Diego. He also co-edits InfoWorld's daily newsletter, TechBrief. Follow him on Twitter @gegax.
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