A common question that everybody asks and wants a clear answer to is “Are we in another tech bubble?”
Notable answers have been:

“I think we’re in a bust. We’re in a long-term technology bust. I think technology has been undervalued since 2000, and we’re still undervalued,” – Marc Andreessen

“The bubble today comes from private investors who are investing in apps and small tech companies.” – Mark Cuban

“Many companies in the market for funding right now are struggling to meet their valuation expectations and are going to have to reassess.” – Jon Sakoda

Perhaps this is not the tech bubble we know and witnessed in 2000, however, perhaps this is tech bubble 2.0. Perhaps have just been experiencing a period “techflation.”


Let me start by explaining what outlining the basics of inflation. In the school of economics, there are two main factors that influence inflation, demand-pull and cost-push inflation. The demand-pull inflation is probably the closest model to what we are seeing in technology valuations today.
Let us extract the definition of demand-pull inflation.

“Increasing quantity of money in the hands of the people increases the aggregate demand for goods and services and if aggregate supply doesn’t follow suit prices rise.”

And then let’s overlay that a little with a Startup lens

“Increasing quantity of money in the hands of investors, and with no place to go that produces notable ROI, increases the aggregate demand for moonshot startups producing goods and services. And because only approximately 10% of startups fail in the first 3 years, aggregate supply of successful startups doesn’t correlate with money supply, therefore valuations rise.”

You will start to see the “techflation” picture more clearly.

The Down-rounds

A friend of mine recently pointed me to this really interesting page that displays the companies that “are not living up to the expectations.” When I saw the amount of down rounds – and this list is probably only capturing the larger names – I was shocked seeing them all one page named and shamed.

Let me just highlight some of them here:


Round type: Series E
Premoney valuation: $600m
Postmoney valuation: $250m
My take:
I love Foursquare. I recently used it on my trip to 3-week trip to Argentina and, to be honest, it improved my trip 5x because let’s admit it what more do you do on holiday except think about what you are going to eat next? It still has a great community, plus the user interface is simple and user-friendly – great.

Now, what is going wrong? Well, it really boils down to monetization. As with most startups, monetization tends to be an afterthought. It’s usually, get users first, think about later (or at least, think more about it later). And I think that’s where some of the issues lie.

Foursquare have only recently realised where their golden syrup is held – the data. As Foursquare has amassed a wealth of user feedback and linked that with geo-locational data, this combination is something other businesses want and need to help them grow their feature list – Foursquare as a Feature (FaaF model). This goes along with their Location-based digital marketing and their ability to construct insights of footfall.
I think Foursquare’s business value proposition has become clearer to them and their customers and they have started following the money whilst keeping their user-base steady (hand perhaps growing).

Gilt Groupe

Round type: Acquired
Premoney valuation: $1050m
Postmoney valuation: $250m

My take:
I have never used Gilt and don’t tend to shop in such a “flash-sale” fashion, however, it appears to me Gilt ran out of momentum and the wind was not hitting the sails with the same level of knots it first did post-financial crisis, when a lot of people became a lot more frugal again and users were attracted to the new platform to catch a deal. I am not convinced the success metrics were being assessed or looked at with the right lens because there was no doubt a lot of feedback they would have been getting which could help explain the gradual use disengagement. As an IPO looked less and less likely they found a suitor, Hudson’s Bay Co, who could inject some new life into the platform and take advantage of some synergistic benefits.


Round type: IPO
Premoney valuation: $6000m
Postmoney valuation: $2900m

My take:
I’ll keep this short. Jack Dorsey is CEO of two companies. Not sure he’s the man to do that as both Square and Twitter is in a hyper-competitive landscape. The financial markets cut Square into little squares and could only reassemble part of the revenue projections.

Inflation = Bubble?

Not quite… I would argue that being in a bubble-state implies we are already there and hitting a limit of capacity whereas techflation is a current state of trajectory. Techflation is good in moderation but I think we need to be careful what levels techflation is reaching. Similar to a hot air balloon, rising slow and steady as the hot air increases inside, tech valuations seem to have increased to a point at which reality kicks in and brings it back down a little. Clearly, when we start witnessing a rise in devaluation adjustments in the shape of a large consistent down-rounds, there probably needs to be a checkpoint somewhere not too far where all the startups answer the basics:

  • Is your business solving a real problem?
  • What’s the problem?
  • How painful is this problem?
  • Have the real users told you this or have you made this up?
  • What’s the market size?
  • How will you make MONEY?
  • Is that realistic?
  • By when will you be profitable?
  • Why not from day 1?





Also published on Medium.

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