Are We on the Verge of Tech Bubble 3.0?


This is the question I asked myself last night when I heard that Groupon had politely declined Google’s $6 billion acquisition bid. That’s billion with a “b” people.

Eight months ago Groupon was valued at $1.3 billion and less than a year later they’re rejecting a $6 billion offer?

Let’s look at the definition of a tech bubble:

A pronounced and unsustainable market rise attributed to increased speculation in technology stocks. A tech bubble is highlighted by rapid share price growth and high valuations based on standard metrics like price/earnings ratio or price/sales.

Don’t get me wrong, the guys over at Groupon seem to have a good head on the their shoulders and are reportedly pulling in nearly $2 billion a year in revenue right now, so it’s not like they’re hurting for money or anything. As Micah Baldwin says, everything changes when the founder drives a Porche.

Since Groupon turned down the offer the internets have been abuzz with rumors as to why they walked away from that much cash. Everything from, “they just want to remain independent” to “they can sell for more later” to “they’re planning an IPO in 2011”.

There’s no doubt that Groupon is currently one of the world’s fastest growing companies, they’re also the early cool kids on the block when it comes to social buying, but how long will it stay that way?

Investors seem to be tripping over themselves to give these new social startups money.

“I’m not saying Quora, Foursquare, Square aren’t eventually worth a lot of money, but the price to pay to get into those games is kind of amazing — $50 to $80 million?” said Dave McClure, founding partner of 500 Startups, a technology incubator in Silicon Valley. “These companies are in big markets with proven founders, so maybe not absolutely crazy but certainly eyebrow-raising.”

Fred Wilson, a prominent venture capitalist, said he had watched the trend accelerate over the last six to nine months. “I am seeing many more unnatural acts from investors happening,” he said in a recent blog post. He attributes it to competition among investors eager to participate in popular young start-ups. And he notes, “I have never seen phases like this end nicely.”

What do you think? Will all of this craziness float harmlessly back to earth or will it all come crashing down again? Could you walk away from $6 billion?

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