2012 Tech Bubble

You’ll hear a lot of people going on and on about how the tech sector is so awesome and how the country is going to pull out of a recession. About how unemployment is recovering, and the bullish second market for companies like Facebook. It’s all a whistle in the dark.

I ran into an entrepreneur in Frisco who was kind enough to demo his product to me. Without excessive detail it was a location based mobile discovery app. The glaring problem with it was 100% useless outside of any downtown, or heavily populated area. Especially in areas with fragmented areas and urban sprawl such as Sacramento it would be useless, not to mention rural areas.  I pointed this out and the entrepreneur calmly pointed out that they were working on 300K of venture capital.

This solution is a home run on home turf. But to cashflow you’ve got to scale. And what really makes me shudder is how many VC firms there are, and how much money along with all the Angels, and how many crappy ideas there are getting funded on this money. The odds of even a tiny percentage of them succeeding and becoming commercially viable is…abysmal. In fact I would be down to short startups just like normal companies.

So in your little bubble of location, or vertical, or whatever it is, you have a killer app that intimately solves a pressing microscopic challenge. And capital is chasing you. Whenever too much money chases too little product you get a bubble. 1929, S&L crisis, Asian Crisis, Dot.com, Subprime Mortgage all fundamentally the same. Too much supply and too little demand.  And in every instance since the hands that profit hold the reins of power and write the news, it’s irrational exuberance all the way to the top. Now the smaller the market the smaller the global effect of the bubble; but fact is, the bubble always pops. Nothing can grow exponentially forever.