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That bubbles would be sticky is unscientific on its face, but I am speaking metaphorically here. When several companies “down exit”, that is sell for less than what they raise, it becomes harder to predict when the bubble will burst. Plus, it keeps the technology bubble going for a while longer, and thus my metaphor.
Just today, I saw a write up by CB Insights (link below) on two interesting pieces of information, one, of the exit of “Good Technology”, a company I came to know of just today (and I live in the Valley, making their rise and fall that much more interesting), and two, of the increasing trend towards “down exits”, or in plain English, companies that sell for less than they raised, resulting in a loss for the sellers, though curiously enough, some parties lose less than the rest.
Can Down Exits be predicted?
The downfall of anything can be a bit hard to predict. Apple and Facebook stock prices continue to perplex me. However, if you are diligent enough, you can never be 100% wrong, though the opposite is also true. I mean, Apple and Facebook prices will have to go down some day, with the latter being more or less worthless, no matter what stories of advertising revenues you try to feed me till sun down.
Gazelles
In effect though, when I looked at some of the quaint examples from the approximate 214 VC backed firms with down-exits that CB Insights put together, “Gazelle” makes total sense to me. As I watched a very bubbly “young person” looking idiot, tell me on the TV, as to how I could get $200, $300 or $400 for my old iPhone by simply mailing it back to them, my brain struggled to inculcate commonsense into that business model of repurchasing old phones at such high prices when practically no one wants them.
Well, there is your example. You know you are in a bubble when a company like Gazelle raises $61.9M based on a business plan less useful than what a bull standing in the field could give you.
You can confirm that you are in a bubble, when some genius pays $18M for Gazelle. Apparently it is a company called “Outerwall”, another one never heard from or cared for. Similar examples including LifeScribe, are available in the link below.
Conclusion
It would appear that for timing the bursting of the bubble, one would have to look closer at these so called “down exits”. See, what it is, as the greedy stockholders of Good are finding out about the equally greedy investors of Good, the investors are not letting the lessons from 2001 die easy. Instead of going from $500M to 0 in 60 seconds, they are now selling off worthless companies to more worthless companies (what kind of a future is it when you are sold to BlackBerry?). This is a new type of game, and it looks like the investors will first make away with the goods for as much as they can, before plunging us all in the dark. So, the next bubble wont pop and whoosh, but slowly die away.
By the way, two things:
- “Unicorn companies”, the broader farce, I am saving for another day, and,
- Apple just reduced its orders for iPhones, as I scribe this post on 5 January, 2016.
Exciting times for all of us ahead!
References:
- The CB Insights Story: https://www.cbinsights.com/blog/poor-exits-startup-trends/?utm_source=CB+Insights+Newsletter&utm_campaign=c7eac2bc9b-TravelTech_01_05_2016&utm_medium=email&utm_term=0_9dc0513989-c7eac2bc9b-86415837
- The Good Technology Story: http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html?_r=1
- Exit Sign: Courtesy of https://www.pexels.com/photo/red-exit-sign-5371/
- Gazelle Artwork: Courtesy of http://www.freevector.com/gazelle/
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