In Silicon Valley, millions of dollars change hands every day as investors hunt the next big thing – the ‘unicorn’, or billion-dollar tech firm. There are now almost 150, but can they all succeed?
Have you heard the story about the tip from the shoeshine boy, a Brit called James Pallot asks me on my last day at TechCrunch Disrupt. I have, I say, though later I Google it to get the facts straight.
It’s attributed to Joseph Kennedy, paterfamilias of the Kennedy clan who, in 1929, was getting his shoes shined by a young boy who was also making confident predictions about which stocks would rise. For Kennedy, it was a moment of revelation. He sold his portfolio. Not long afterwards, Wall Street crashed and the world was plunged into the greatest depression ever seen. So a tip from the shoeshine boy is a sign that the bubble is about to burst. That the wave of confidence will finally crash upon the shore. That the jig is up.
Pallot used to be the digital editorial director of Condé Nast in New York and now he has a startup. But then, we’re at the world’s biggest startup conference in San Francisco, a few miles down the road from Silicon Valley where the world’s greatest concentration of technology startups first started up.
His company is in the booming field of VR, or virtual reality, which is to 2015 roughly what Rubik’s Cubes were to 1982, though with rather bigger potential consequences. Pallot claims it’s the logical next step for journalistic content. In 20 years’ time, you won’t be reading this on the page, I’ll probably be leading you by the hand through a 3D rendering of a virtual TechCrunch conference floor. Or, more likely, you’ll be leading yourself and I’ll be claiming jobseeker’s allowance.
But anyway. In the meantime, Pallot asks me if I’ve heard of the tip from the shoeshine boy. I have, I say, and tell him it’s been on my mind. Because for three days, I’ve been hearing about “unicorns” – a Silicon Valley term for companies that have been valued at more than $1bn. When this usage was first coined, less than two years ago, there were 39 of them. Today, there are 147. Or as Matthew Wong, a senior analyst at CB Insights, tells me: “The funding is at levels that we haven’t seen since 2000.”
As those with longer memories will recall, that was the year the dotcom bubble burst. It needs explaining because there are an awful lot of people at TechCrunch whose memories simply don’t go back that far: the typical startup founder is male and in his 20s. Back in 2000, Google was less than 18 months old and Facebook wasn’t even a glimmer in Mark Zuckerberg’s eye – he was still at high school. (At 31, he’s now practically Silicon Valley’s elder statesman.)
Everything has changed. And is changing at an ever-faster pace. Eight years ago, TechCrunch launched its Disrupt conference with 45 startups. This year, there are 5,000 of them. Over three days I talk to founders of companies from San Francisco and Texas and Uruguay and Beirut and Stockholm and Tel Aviv and Warsaw. There are apps for crowdfunded mortgages and cheaper divorces and better sex. There’s “Expedia for golf” and “Facebook for cars” and “Nest for water” and “Tinder for dogs”. There’s a virtual reality teddy bear, a device that claims it will be able to read your emotions via a contact lens in your eye and another that will automate your home cannabis farm (marijuana is a big deal in Silicon Valley right now). I miss the panel on nuclear fusion startups but they’re around.
They’ve all paid upwards of $3,000 (£1,900) to be here and they’re all trying to attract the attention of Silicon Valley’s biggest beasts. The VCs – venture capitalists to you and me. The money guys.
“How do you spot them?” I ask Peter Becronis, the founder of a real estate startup called Owner’s Vault. “Oh, it’s easy,” he says. “They’re all men, older guys who are in jeans and brown boots and perhaps a blue jacket. Oh, and a good watch. They’re the ones who shuffle past you trying not to catch your eye.”
It’s a long shot for the likes of Becronis to be here, but not a total pipe dream. Because hundreds of startups are being funded each month. Vast sums of money are changing hands. Crunchbase, TechCrunch’s sister site, lists the deals that are being done on a daily basis. On the day I write this, I check it and find 24 companies that have just received funding, including Kreditech, which got $92m (it uses “big data and complex machine-learning algorithms to credit score everyone worldwide”) and Medium, which received $57m (it’s a platform that has found another new business model that seems to involve not paying journalists).
Every month the amount of money being invested in early-stage startups goes up. And every month, more and more people are starting to use the B-word. Bubble. The last time this amount of money was swilling around, we know how it ended. “Back then, a lot of websites launched but that’s all they were, websites,” Mike Butcher, TechCrunch’s editor-at-large, tells me. “Now in 2015, all those technologies that were predicted – AI, drones, VR – have all turned up. The innovation is real. And it just continues to get bigger and bigger. There are more VC firms here than you can poke a stick at.
“Is it a bubble?” he asks and then answers the question himself, vividly, if not entirely clearly. “It depends. How many unicorns can you fit through the eye of a needle? Anyway, unicorns are over. It’s all about decacorns now. Companies that are worth tens of billions of dollars.”
The shoeshine boy wouldn’t be tipping stocks in 2015, but what would he be doing? I ask Ned Desmond, the chief operating officer of TechCrunch. He thinks for a moment. “He would probably be an Uber driver who has his own angel investment line,” he says.
But James Pallot tops that. He’s flown in from JFK and had his shoes shined in the airport. “And the guy had a startup. I literally got a tip from the shoeshine boy! He was trying to find an investor for his national shoeshine franchise.” But then, in many ways, there has never been a better time to be a startup. Niko Bonatsos, a VC with General Catalyst Partners, tells me that the sheer number of companies at TechCrunch “speaks volumes about how the barriers to entry have been removed. It’s really easy to start a company. And lots of companies from other parts of the world see this as a lottery ticket. And for some of them, it will be. It’s the survival of the fittest. And the luckiest.”
Pallot and his co-founder are currently “bootstrapping” their company, Emblematic Group, which is creating virtual reality news content. “Bootstrapping” is Silicon Valley jargon. It means getting by with what you’ve got. It’s how people have set up companies since the dawn of capitalism. You start a business with a bit of money you already have and you try to attract customers and build it from there.
“Bootstrapping” is how you figure out if there’s a market and, if so, how you reach it. It’s also, like, totally 20th century. The reason 5,000 companies pay $3,000-plus to come to TechCrunch is because Silicon Valley has another model. People – strangers – will give you vast sums of cash to build your company into a global brand overnight. If you can deliver the killer pitch. The pitch that convinces the valley’s top VCs that you are the next Facebook, the next Uber, the next Airbnb.
“It doesn’t work like this in the rest of the world,” Ned Desmond tells me. “In Indonesia or Turkey or wherever, normal business culture demands collateral and security. Venture investing has none of that. You are investing in potential.” You’re gambling, basically. Silicon Valley, in 2015, is a giant casino. And the bets are so large because the potential payoffs are so huge. The next Google has to start somewhere.
So is it a bubble? “Everything is cyclical,” says Desmond. Does he remember the last crash? “I was there! I was in it. It was terrible. We had just launched a magazine, Business 2.0. Even the name sounds so cringeworthy now. We launched in May 2000 with a record number of advertisements. We had 150 ad pages. A year on, we had 15.”
This is not exactly an answer, so I try again. Is it a bubble? “We published a graph showing the unicorns. It’s a hockey stick. It’s near vertical growth.”