Bubbles always burst. It is just a question of when, and who gets hurt when they do burst.
TechCrunch says that Automattic (Wordpress) turned down a $200M offer. Read/Write Web says Plenty of Fish, an online dating site, may be worth $1 Billion. Last week Facebook had an implied value of $15 Billion. Not to be left out of the Web 2.0 frenzy, BEA turned down a $6.7 Billion offer. And New York Magazine says, it may be a bubble but New Yorkers should embrace it. There are lots of good reasons to turn down acquisition offers, and it doesn't necessarily signal that we are in bubble, but it should give pause for serious thought.
Entering Stage 2 - Bubbles go through predictable cycles. Bubbles emerge from the ashes of despair. It takes a while to gain momentum but eventually greed overtakes fear and we are off on another bubble adventure. The first stage of a bubble is when most smart money declares we are NOT in a bubble...it is different this time. The second stage is more dangerous. Many people agree that we are in a bubble, but it will last another year or two, and there is still money to be made. The third stage is when the bubble has burst but most people are in denial and think it is a temporary set back. The fourth stage is when everyone agrees the bubble has burst and life will never be the same. My guess is that we are now entering Stage Two of the bubble cycle.
I have written about bubble cycles before. My favorites are; "Bubble or normal failure scenario?", and "I'll trade my two $50K cats for your $100K dog", and of course "Fear is temporary, greed is permanent"
Bubbles are always different and play out on different time lines...but they all end the same way. Where we are in the current cycle is debatable. But as Mike Moritz of Sequoia Capital said at the recent Web 2.0 Conference
“The great news for me about these times of enthusiasm is that inevitably there’s a lot of bedlam, undoubtedly there’ll be carnage, there’ll be all sorts of carcasses strewn across the road. But there will also be a handful of companies that will emerge to become very significant. And that’s what working and living and investing in Silicon Valley has always been about.”
Mike Moritz (Sequoia) and John Doerr (Kleiner Perkins) have been very successful navigating through these cycles. The interesting thing is that smart entrepreneurs and investors can succeed at each stage of the cycle. There are always inefficiencies in the market and unmet needs. That is indeed what makes this business so much fun. Good luck!