Is this startup boom a bubble

Boom or bubble

Steve Blank is something of a startup legend in Silicon Valley. The audience is taking notes, tweeting and taking photos. Nobody wants to miss a word when the former entrepreneur talks about his experiences, nobody wants to miss the chance to tell him about their own project. In the hope that Blank will find the idea brilliant - and predicts that this very startup will make the breakthrough. Soon to be in a league with LinkedIn, the world's largest online network for business contacts, which launched one of the most spectacular IPOs of the year in early summer, or with the social network Facebook, whose value is now estimated at up to 100 billion dollars, or even with Apple, which under its recently deceased founder Steve Jobs became the most valuable company in the world today. Where should something like this work again, if not here?

"Just as people flocked to Paris, Athens or Florence during the Renaissance, there is no way around Silicon Valley today. People have left their homes, their families, to come here. To bring something to life that nobody else can has something else that you can only do here. We have created something wonderful, not just for the region, but for the world! "

Steve Blank came to California over 30 years ago with this modest vision and co-founded more startups than he can count on one hand - for example, "Rocket Science Games", a company that develops video games, or the software company "E.piphany" . And he has seen more than one bankruptcy. Today Blank lectures on successful business start-ups and teaches at Stanford and Berkeley Universities.

"Do you know how we call failed entrepreneurs here in Silicon Valley? We call them experienced! Anywhere in the world you would have to change your name, move, your parents would be ashamed of you. I think this is a unique American phenomenon: That You fail so often and still collect tens of millions of dollars. Think about it! It's a fantastic story! "

And it is precisely these fantastic stories that young entrepreneurs in San Francisco want to hear. And not only there - also in Palo Alto, Mountain View and Menlo Park. For the time being, there is no talk of overvaluations and falling growth forecasts, of the fear of a renewed recession and impending price collapses on this evening:

"Against all odds, we believe in ourselves. Starting a company is a matter of belief! If we knew all the facts, nobody would start a company! This is an irrational business! You must be crazy."

Everyone was crazy at one point or another. Crazy about young internet companies who wanted to change the real world with their virtual ideas. Investors and investors had enormously high profit expectations, the prices of which soared to dizzying heights. Everything seemed possible - until the speculative bubble burst in the spring of 2000. NASDAQ-listed companies lost five trillion dollars of their stock market value within two years. One five, twelve zeros. Memories are awakened, parallels are drawn:

Do you see a speculative bubble? "Asks this radio presenter the guests and listeners of his discussion program. And the business magazine" Fortune "is bursting the pink chewing gum bubble that Facebook founder Mark Zuckerberg inflates on the cover picture. because companies like the career network LinkedIn cannot meet the high expectations in the long term? Or the bubble will run out of air beforehand because some of the most promising Internet companies have just postponed their IPO - the social network Facebook, for example, the online game developer Zynga , the Groupon discount portal?

"I mean, who knows, right? Who knows what will happen next year? I won't try to make a prediction. But things are going well right now. You just have to be aware of the state of the market and be careful about it."

Andrew Hsu is sitting in a glass conference room in an orange checked shirt and well-worn sneakers. At the beginning of the year he dropped out of the elite Stanford University. The business courses there would not have helped him on the way to his own startup, says the 20-year-old, a little cocky. But maybe it is for someone who already has three college degrees - and has ambitious plans. Because in Silicon Valley, one of the richest regions in the world, there is hardly a company that can do without a little megalomania. The rule is: "Think big".

"I want to create a huge company that will fundamentally influence the world and change the learning behavior of the next generation. And I hope that we will also be very successful financially."

At least his office in Palo Alto, in the middle of Silicon Valley, already has a lot like that of the big companies in whose footsteps he wants to follow. Instead of in an unheated garage - like Apple founder Steve Jobs - Andrew Hsu tinkers with his startup "Airylabs" in a cold loft.

Table football, dartboard and drums included. His first online educational game for schoolchildren was recently launched as a so-called app for smartphones. "A historic moment, the beginning of a long history of fantastic educational games," blogged Andrew Hsu that day. Think even bigger. Even if the 20-year-old may be particularly talented, he is one of many who try their luck in Silicon Valley. The universities in San Francisco, Berkeley and Santa Clara take pride in this entrepreneurial spirit and encourage it in a targeted manner. The elite Stanford University advertises not only with its scientific merits, but also with its billionaires. Many graduates set up their first start-up immediately after graduating. Others don't wait that long, get started during their studies, like the Google founders, or break off their training beforehand. Even high school students learn how to turn their computer puzzles into a successful start-up in summer academies. Keeping an overview is impossible, says Amir Efrati, a journalist with the Wall Street Journal in San Francisco:

"Thousands are just moving out, raising venture capital and starting businesses - for social networks, smartphone apps, online games. We get so many emails from new startups that we can't even read them all if we still want to work."

Foreign entrepreneurs are also drawn to California. Torsten Reil has been in business with his online game company "Natural Motion Games" for a good two years. His first five games have been downloaded as an app nine million times. With "My Horse" the sixth has just come onto the market. However, the German has only been in San Francisco for a few weeks. Because everything comes together here: ideas, idealism, investment. A little more of everything than anywhere else in the world.

"The reason the mood is good here is because a lot of things have come together in the last year or two. On the one hand, there are business models that work - online games that work very well. And on the other hand, there are business models that work There is also a trend that people not only use the Internet on their computers, but also on their mobile phones, so-called smartphones. And that simply opens up completely new opportunities to make money and create new business models. "

And the market research company IDC assumes that this market will grow rapidly and that in four years' time more people will be online with smartphones than with computers. For many, the future lies here, in Silicon Valley. The future of the American economy.

For US President Barack Obama, there was probably no better place to talk about new impetus for the US labor market than Silicon Valley. A region that is thriving unlike the rest of the country. In which America can still get intoxicated, in which the American dream is still being lived.

"No region of this country is better for what America is all about. For entrepreneurship, dynamism, optimism, for the belief that if you have a good idea and are ready to invest blood, sweat and tears, you will not only succeed yourself, but also stimulates the economy for everyone else. "

The unemployment rate in California may be 11.7 percent higher than in almost any other American state - Silicon Valley has created over 30,000 new jobs in the past twelve months. "We hire" can currently be read on almost every website. However, almost exclusively skilled workers benefit from the boom in the industry: 30 percent of all vacancies in the region are advertised for computer engineers, according to the job exchange "Simply Hired". Everyone is currently fighting for them. Companies attract with starting salaries in the six-figure range. With stock options. With volleyball field, soccer field and fitness room; Laundromat, hairdresser and postal service; and of course three free meals a day. If you work for the internet giant "Google", you don't even have to move more than 50 meters. Thanks to the "150 feet rule", coffee and sandwiches are always at hand. Entrepreneurs Torsten Reil and Andrew Hsu are also desperately looking for:

"Most companies are growing rapidly, which means that they don't need one person a month, but five people a week. We do the same and that is very, very difficult to fill."

Andrew Hsu:

"It's now really hard to find people because everyone is starting their own startup. When it comes to good computer engineers, the competition is fierce. There are so many companies here and many of them offer really good salaries."

In the past year salaries rose faster in any metropolitan area than in Silicon Valley. At Facebook, for example, a software engineer earns around $ 120,000 a year. Accordingly, property prices in the area are exploding. At $ 500,000 to $ 600,000, a house in Silicon Valley is on average three times more expensive than the rest of the country. Office space is becoming scarce, Apple and Facebook are expanding, and gigantic company landscapes are planning. Stephen Levy is the director of the Center for Continuing Study of the California Economy. The economist is also watching these developments with concern.

"We are doing better at the moment than almost all other regions. We will be fine too, even if the economy in the rest of the country stagnates because we sell all over the world. But if the economies in Europe and Asia cool off, then at the latest we are also affected. "

But business is still booming. Andrew Hsu is looking for almost two dozen new employees. Advertises ten "fantastic" reasons to work at Airylabs. One of them: the secure financing of his start-up - thanks to a start-up capital of 1.5 million dollars. Even if this sum is comparatively small, the names behind it are impressive: Google has invested in educational games with its offshoot "Google Ventures". The 20-year-old is also a Thiel Fellow. And thus has one of the industry's investors behind it. Venture capitalist Peter Thiel. The American of German origin is a co-founder of the Internet payment service PayPal and, after founder Mark Zuckerberg, the second largest shareholder in Facebook, the market leader among social networks. Thiel doesn't believe in caution or restraint - and besides Andrew Hsu has persuaded a good twenty other students to quit university and start their own business with his help.

"Working on a global breakthrough requires an intensity and effort that cannot be pursued part-time. If the Facebook founders had stayed at Harvard University, they would not have been able to set up the network. And after graduation it might be been too late. "

To be late is also the concern of the countless investors in Silicon Valley. In the first three months of this year, venture capitalists invested three times as much money in technologies for private users - social networks or game companies - as in the previous year, over $ 870 million. Doesn't this abundant money feed a bubble after all? No, there is no such thing as it cannot exist, says Peter Thiel - because many of the companies are not or not yet on the stock exchange, there is no general stock market fever.

Venture capital investor Nancy Pfund nods. It is too early to speak of a bubble. Pfund is one of the few women in the industry who manages two million dollar funds with her investment company DBL. Was an analyst at the American investment bank JP Morgan, advised the Bush and Clinton administrations on technology and Internet issues. Your company is not only aiming for the greatest possible profit, but also encourages the startups to get involved in social or environmental issues. The idea, business history, market opportunities count.

"Everyone involved now has a much more realistic idea of ​​what it means to start a company. If you didn't go public within two years in the 1990s, everyone was wondering what was going wrong. Today you are more sensible , gives companies three, four, five, even six years until they are big and experienced enough to go public. "

However, one of the companies in which pound has invested is also responsible for the speculation about a new bubble: the personalized Internet radio "Pandora". Going public in the summer, the loss-making radio station was at times worth over two and a half billion dollars - then the shares crashed again, and doubts arose about the station's business model. Sooner or later, "Pandora" will meet the high expectations, replies Nancy Pfund. Profits and audience numbers would already grow. And then Pandora could be bought by a big company - that would do its job.

Steve Blank has come to the end of his lecture. Questions were asked, projects were sketched out. Finally, a young woman in the front row hesitantly raises her hand and asks what he thinks of the whole discussion about the bubble.

"There are many signs of an apocalypse. Irrational valuations of companies, both early on when entrepreneurs have just a few ideas and later on when they go public. On both ends of the scale, companies are overrated and hyped. "

Says Steve Blank. Also with a view to Facebook. The social network is now said to have 750 million members, the value is estimated at up to 100 billion dollars - sales and profits are only a fraction of that. Overvaluation like this is a sure sign of a bubble, says Steve Blank. And still laughs - because this time it's different from 2000. Stephen Levy, Director of the Center for Continuing Study of the California Economy, shares this opinion:

"In 2000, the company's shares were costing a lot of money, but they had no business. But Facebook, Google, Apple and LinkedIn have businesses. They have millions and millions of users and will therefore continue to grow. This is not a bubble in the sense that investors in Companies invest that have neither customers nor products. "

When the speculative bubble burst in the spring of 2000, the losses were enormous. Those of the companies, but above all those of the numerous small investors. Because many of the Internet companies are not or not yet on the stock exchange, this time it would primarily hit the investors who take this risk into account. And of course the companies, but not nearly as tough, suspects Torsten Reil from "Natural Motion Games".

"At that time the consequence was that the companies went bankrupt, they didn't make any money. This time it will be different because most companies at least make money, which means that even without investment it will be possible to continue to exist and to continue We will not see this catastrophic collapse as we did last time. "

In addition, the Internet has simply grown up in the meantime, says Reil. In fact, seven times as many people go online today than ten years ago - and they are now ready to do their business online. The online advertising volume has meanwhile increased tenfold. The enthusiasm in Silicon Valley for new companies is great, says Nancy Pfund. Above all, it invests in clean tech, i.e. in technologies that are intended to make production processes more efficient and, above all, more environmentally friendly.

"What is different now, however, are the external circumstances, is the uncertain situation on the markets. That makes an IPO more difficult, you just have to plan it better in terms of time. But I assume that we will still be in the next 12 to 24 months will see some successful IPOs. "

Steve Blank is more skeptical. The boom will continue for two to four years, he predicts. And turns back to the young company founders who are still standing in line after his lecture and ask for advice. The eight-time entrepreneur has one for everyone. That no boom lasts forever:

"If we've learned one thing, it's this: It depends on knowing when to get out.I don't think even the dumbest investor believes it will go on forever. "