I posted the video when it first came out in 2007 and watched it again this morning and it feels much more relevant today than it did then. It might not be a bubble yet, but the environment is definitely getting frothy. Most of the larger companies going public or being acquired are clear leaders with revenues and profits, albeit with dizzying valuations. However, at the seed stage seemingly anyone with an idea can get funded. Moreover, the terms have worsened significantly for investors as “uncapped convertibles”* have become more common for the best deals. This frothiness at the seed stage is making the war for talent insanely competitive resulting in failed or marginally successful startups being acquired only for their teams! This won’t become a full blown bubble until marginal companies start going public or getting exits based on hope rather than real success, but it sure is getting hot in here! Now is definitely a good time to be starting or selling a company.
By the way, if you have not seen this video of the Ricther Scales at the 2010 Crunchies, it’s well worth checking out as well!
* An uncapped convertible means the seed investors invest in a note that will convert to equity at a discount to a Series A deal at whatever that price is done. This is as opposed to a priced deal where there is a valuation that is defined and we are buying equity or a capped convertible where the note will convert, but the price of the conversion has a ceiling. As I explained in my angel investment guide, Jose and I don’t like convertibles because we don’t feel they properly reward us for the risks of investing in a seed round, especially since a Series A is far from guaranteed to happen.