2. The State Of Startups
(No, It’s Not A Bubble)
May 3, 2012
Henry Blodget
CEO, Business Insider

3. Henry Blodget
Founder, CEO & Editor-in-Chief,
Business Insider
Pascal-Emmanuel Gobry, Senior Analyst
Alex Cocotas, Analyst
We’ve launched a new industry intelligence service for executives and investors.
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4. For startups, money
is oxygen…

5. So here’s a quick look
at the money flows…

6. Overall VC fundings still trending down…

7. Most VC money still going to “software”

8. Today, “software” means “the Internet”

9. VC Internet investments are still increasing

10. And VC fundraising is ticking up, which
means they’ll have more to invest…

11. Angels like Internet, too, but they really
love… healthcare!

12. And how about
“exits”?

13. The tech IPO market is open, but still
only for mature companies*
* The JOBS Act could begin to change this. Fingers crossed…

14. VC-backed IPOs have recovered from
crash, but still far from robust…

15. The M&A market has recovered, but
also still meh

16. (By the way, there’s a
good reason to sell your
company now…)

17. TAXMAGEDDON!
(Big capital gains tax hike Jan. 1)*
* Unless Romney wins.

18. So, how’s New York
doing?

19. New York VC is increasing!

20. New York is the third largest VC region

21. New York overtook Boston in deals last quarter

22. And New York is No. 2 in Internet deals

23. NYC now has a full financing ecosystem

24. And a boatload of startups…

25. So, is it a bubble?

26. NO.

27. In fact, calling today’s
market a bubble is an
insult to real bubbles!

28. THIS is a bubble…
NASDAQ, 1991-2004

29. THIS is a bubble…
House Prices: 1976-2012

30. Do you see a parabolic pattern now?
NASDAQ: 1971-2012

31. How about VCs? Are they going
hog wild as in the 1990s? (Nope)
Total VC Investments By Quarter, 1995-2012

32. Two important characteristics of
ACTUAL bubbles…
• Sky-high valuations relative to
fundamentals…
• Everyone justifying those prices
by saying “It’s different this time.”

33. Is everyone
justifying today’s
prices by saying:
“It’s different this
time?”

34. No.

35. They’re saying:
“Duh, what a bunch of
morons, this is so
obviously a bubble.”

36. And how about prices
relative to
fundamentals?

37. HOUSING BUBBLE: Price ratios
spiked off the charts…
Price-To-Rent: 1983-2012

38. STOCK BUBBLES: Price ratios
(blue) spiked off the charts…
S&P PE: 1885-2012

39. “But, but…
What about tech
companies?”

40. Let’s look at the
hottest tech company
in the world…

41. Apple’s PE ratio is ~15X and has
been declining for years

42. “But, but…
What about those
RIDICULOUS IPOs?”

43. You mean these IPOs?—they’re
miles from “bubble”
3X 2012E Revenue
4X Revenue
5X Revenue
12X Revenue

44. Yes, many thought Groupon and
Zynga IPO prices too high… but
that’s what makes a market.

45. “But, but…
What about…
INSTAGRAM???”

46. $1 Billion for a
company with 13
employees and NO
REVENUE?!?!

47. Well, let’s think
about that….

48. Last year something
profound happened.

49. Sales of smartphones blew past sales of PCs…

50. The “dumbphone conversion cycle” is still
in early phase

51. In the future, the number of smartphones
and tablets will DWARF the number of PCs

52. The only “stupid”
conclusion about mobile
revolution is to dismiss it
as silly.

53. Turns out Instagram is the perfect native
smartphone app…

54. Instagram to 50 million users in 1.5 years

55. “But, but…
Instagram has NO
REVENUE!!”

56. Here’s what to say to
people who say that…

57. Really?

58. Really???

59. What about these other startups that
initially had “NO REVENUE”?...
• Google
• Facebook
• Twitter
• Every biotech company
• Every car company
• Every real-estate project
• Every exploration company
• And so on…

60. To say a startup is
worthless because it
has “no revenue” is
moronic.

61. Some other Facebook-Instagram
considerations…
• Facebook sucks at mobile
• Instagram threatens a core Facebook service
• Twitter, Google, et al, might buy Instagram
• Facebook is valued at $100 billion

62. So, what was Mr. Zuckerberg’s logic?
“I can spend 1% of my company to buy the
hottest startup in a massive sector that threatens
my core business, eliminate a competitor, and
make sure my competitors don’t get it first?”

63. “Where do I sign?”

64. The bottom line…

65. This opportunity is MASSIVE.

66. It’s not a bubble.
It’s rational exuberance.

67. But remember!

68. Everything is cyclical

69. All booms turn to busts
(Mobile will someday, too)

70. Building great products
and companies is hard

71. Most ideas don’t work

72. So don’t forget the
golden rules of
financing…

73. No one ever went
broke because they
raised too much
money

74. Raise money when you
can, not when you
have to

75. Thank you!