Is There A Tech Bubble?

Economic bubbles are fascinating, provided you don’t have your own money tied up in a given market. There tends to be an element of true ridiculousness about most of these bubbles: during the first ‘official’ economic bubble, people were willing to pay up to ten times as much as they made in a year for a single tulip bulb.

Right now, there’s a lot of debate on whether we’re facing a new startup bubble. David Einhorn made a good argument in favor of treating the current investment situation as a “second tech bubble.” The argument he makes, including how easy it is for companies with minimal income potential to get investment right now, sounds solid to me. The general sense of ridiculousness in startup culture right now just serves to reinforce the sense that the culture around tech isn’t sustainable.

So what, though?

A burst bubble means a lot less investment money to go around. However, many of the companies that already have cash in hand will be able to reduce their costs and stay afloat until they hit profitability. The cost of starting a new company has also dropped dramatically, so a lack of investment capital won’t keep people from launching new startups, either. Some companies — the ones without even a hint of how they can make money in the long-term — will die, but perhaps not as many as investors are suggesting. The bubble will burst, but it may not be enough to purge that many startups out of the herd. Rather, something more drastic than a lack of capital will be necessary to make many of these companies truly sustainable.

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