
A correction in startup valuations would be good news for the technology sector - edward
http://www.economist.com/news/leaders/21679194-correction-startup-valuations-would-be-good-news-technology-sector-gored
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god_bless_texas
Damn, a billion dollars is alot of money. Amazing that something can be put
together in less than 5 years that is worth multiple billions of dollars. Even
more surprising that you can amass a list of 100+ companies that are less than
10 years old and worth tens of billions.

I foresee alot of NFL and MLB team owners in the next 10 years.

~~~
padobson
_I foresee alot of NFL and MLB team owners in the next 10 years._

Especially when _that_ bubble bursts and the price of a major sports team
comes crashing down.

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pboutros
Hmm - that's such a tightly controlled market, with such limited ability to
disrupt the core business model (tickets + merchandising + licensing rights =
cash), that I wouldn't really think of it as a bubble. What are your thoughts?

~~~
padobson
Most of the revenue comes from TV contracts which have exploded in recent
years as sports have become the primary reason to continue to have a cable
subscription.

Netflix has almost 70 million subscribers[1], and cable-based companies,
especially for sports networks like ESPN[2], are hemorrhaging subscribers.

TV contracts for sports are overvalued as a dying delivery mechanism throws
all of its capital at the last stronghold it has. When cable companies shrink
to the point where they can no longer afford to offer these contracts, you're
going to see revenue in all the major sports sharply contract.

It's going to be fun to watch. Protracted labor disputes as revenue based CBAs
are re-negotiated, mass sell-offs of franchises as sub-billionaire owners are
forced out, and (perhaps most exciting) the rise of professional gaming - an
industry ahead of the curve in streaming media.

[1][https://en.wikipedia.org/wiki/Netflix](https://en.wikipedia.org/wiki/Netflix)
[2][http://www.forbes.com/sites/mattconnolly/2015/11/27/espn-
dow...](http://www.forbes.com/sites/mattconnolly/2015/11/27/espn-
down-7-million-subscribers-in-2-years-biggest-loser-among-disney-cable-
channels/)

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jroseattle
The author never makes the connection (for me) in how this is good news for
the technology "sector". Three over-generalized and shaky premises applies to
the entire industry? Ridiculous.

There are probably multiple I-told-you-so's waiting in the wings from those
who have raised large amounts of investment dollars with potentially hard-to-
fathom implied valuations. The causes will be many, and lessons-learned will
be summarily written. The label associated with the mythological creature is
noise, not signal.

In the end, failure is a good thing in the tech sector. To quote Bill Gates,
"Success is a lousy teacher. It seduces smart people into thinking they can't
lose."

~~~
keithwhor
"A correction may teach startups to focus less on headline numbers, more on
fundamentals."

To me, this is the most important sentence in the article. The amount of hand-
waving in this industry is staggering. The point of a business is to create
value. Most of us would interpret this as, "create value for a customer." The
idea being you then capture the value you've created later on.

There are hundreds... thousands of people working in and running startups that
totally miss this mark. "Create value," to them, means, "get an amazing
valuation." You know those stories about hyper-competitive MBA-types? There
are people around us who base their own self-worth on how much money they
raise compared to their peers. I have an inkling that it's becoming a bit of
an epidemic.

The article hits the nail on the head in that top-performing firms can't
create enough of a signal to be heard over all of this "valuation aggression."
How can they compete? Get more narcissistic and play the game everybody else
is playing... now we have all the makings of a positive feedback loop. It's
easy to forget fundamentals.

I welcome a correction, and I don't think it's pessimistic to do so. It's just
economic homeostasis at work. Need to negate that feedback loop at some point.
The competent and well-intentioned will be the most likely to survive. It's
why we argue for a free market, right? :)

~~~
jroseattle
This is all true, but a broad-based correction (whatever that looks like) will
do little to change the behavior you're mentioning.

Hand-waving? Been around forever, and it will continue to be. Hyper-
competitive MBA types? Existed well before the tech industry.

These are personality traits, and while annoying, do not drive this industry.

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gamesbrainiac
I think a billion dollars is reasonable when you consider that these new
businesses pretty much sell either products or services to the entire world,
the market is not limited to the united states.

~~~
aczerepinski
Selling products and services all over the world doesn't add value unless you
have a business model that allows you to _profit_ from those transactions.

~~~
gamesbrainiac
And what makes you assume that they will fail to profit off of their user
base?

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taejo
I'd say that's a far more reasonable default assumption than that a business
_does_ make a profit.

