Merchant Innovation

Bubble Warnings Coming From SXSW

All of the coolest kids in tech, music and movies were gathered in Austin to meet, greet, network and share a few grim prophesies of doom to come.  OK, well, that last one was probably limited to just one attendee – but that attendee is prominent tech investor Bill Gurley, and he is warning that the tech space is heading toward a big bubble pop.

It is undeniable with the funding rounds and valuations flying around that the math of tech investing has become generous toward startups and that VCs are starting to look a bit like ATMs for potential innovators – and according to Gurley, that is the problem.

The startups, he notes, are led by young technologists with little business experience – meaning their corporate burn rates are high and they are spending through large sums of cash to push growth.

The problem is that not all of these big cash investments are going to pan out as good – some of these firms are gong to fail spectacularly and expensively.

“There is no fear in Silicon Valley right now,” Mr. Gurley said Sunday at the South by Southwest music and technology conference. “A complete absence of fear.”

But some fear is what the Valley needs, he says, noting that there are simply too many unicorns out there right now – a unicorn being defined as a private company valued at more than $1 billion by investors.

“I do think you’ll see some dead unicorns this year,” Mr. Gurley said, noting that some of these unicorns – particularly things going head-to-head like Uber and Lyft or Square and Stripe – cannot all succeed at once.

Not everyone agrees with Gurley’s line of thinking. John Zimmer, president of Lyft, has noted that both his firm and rival firm Uber have experienced sharp concurrent growth.

It is worth nothing that Gurley does have something of a dog in the fight. Two of Benchmark’s (Gurley’s firm) portfolio companies are Uber and Snapchat – valued at around $41 billion and $15 billion, respectively.

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