Magazine article The Spectator

Bubble 2.0

Magazine article The Spectator

Bubble 2.0

Article excerpt

Ten years after the dot-com bust, investors are wild for the web again

There is nothing more maddening to an old-school investor than a bubble. And especially a bubble in which young people are getting outrageously rich.

But here we are, 11 years after the last technology bubble popped, in the midst of another of those exuberant moments. Facebook valued at $75 billion. Groupon, a three year old coupon business, at $25 billion. College dropouts with a knack for programming and a devilish knowledge of our online behaviours are suddenly worth more than a roomful of Goldman Sachs partners.

The valuations are crazy, the value investors splutter. There are real businesses with real earnings worth nothing like these shooting stars. It's immoral! Well, maybe.

The most dangerous thought in any bubble is 'this time it's different'. Every bubble, tech or otherwise, reflects the same phenomenon, a wild divergence between price and value. In the early 1980s, Wall Street was infatuated with any company with the suffix '-onics'. In the late 1990s, it was companies which promised to rule the new-fangled internet. Which told investors not to worry about revenue or profits, because they were the new paradigm. Give them the money so they could build the brand. Everything else would follow. For a few it worked, for most, not.

So what's happening now? A month ago, a good friend of mine went to Los Angeles to pitch a company in a start-up contest. In the audience for his pitch happened to be the actors Ashton Kutcher and Demi Moore.

They loved the pitch and tweeted about it.

Since they both happen to be among the most followed tweeters in the world, word quickly spread. By Tuesday, my friend Bo was fielding term sheets from several investors. It wasn't just Ashton and Demi any more. It was Silicon Valley's finest. Some of the earliest employees at Google, now investors of their own vast fortunes, wanted in. One of them called it the most promising idea he had seen since Google.

By Friday, investors had committed $1 million for 12 per cent of this five-day-old company, valuing the entire thing at $8.3 million. As a thoroughly exhausted Bo put it to me after closing out his seed investment round, 'It's like I've found a tiny dragon and now I have to bring it up.'

The idea? It's called Zaarly and allows you to offer any amount to anyone for anything. Say you're standing in line at a restaurant and want a table now. Rather than trying to slip the waitress a twenty, and risking rebuttal, make an offer. The offer pops up on people's phones and they can decide whether to accept. Or perhaps it's Saturday morning and you need someone to pick up your dry-cleaning. Make an offer. Someone, somewhere could probably use the money.

It promises an economy driven by demand more than supply. It's also in a magic investment hot zone between social networks, peer-to-peer payment systems and locationbased software. Once they have figured out the software and how to minimise the sleaze factor, people offering money for the nastier goods and services which can poison any web service, a beta version should be launched within a few weeks.

Will it work? Could do. The founding team is a winning combination of marketing, programming and operational talent. …

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