Loss-making Twitter has been valued at $10bn. Facebook is said to be worth more than Ford. Now, for some investors, the alarm bells are starting to ring.
Two years ago, anthropologist Sekai Farai was awarded a grant by Columbia University to study the technology startup community. Her timing couldn’t have been better: a new goldrush is under way as twentysomethings from New York, London and San Francisco dream of making their fortunes from a new generation of internet companies.
Sitting in the lobby of Manhattan’s Ace Hotel, one of new-school tech’s favourite hangouts, Farai predicts the boom has just begun. “People who not long ago started startups because they couldn’t get a job are turning down jobs now,” she says. “There’s so much money about. The idea that your idea could be the next big idea is very real. There’s a real air of excitement.” Could it all end in tears? “It always does.”
Right now, though, who wouldn’t be excited? Every week, one of the new generation of internet firms seems to attract a sky-high valuation. Zynga, the social-network games company that has tempted millions to grow virtual vegetables in its FarmVille game, has been valued at $9bn (£5.54bn). Profitless Twitter is said to be worth $10bn. Groupon, vendor of online discounts, rejected a $6bn offer from Google and is considering a flotation with a potential valuation of $15bn. Tech-watchers say this is just the start: the real boom will come when Facebook, the head boy of the new dotcom frenzy, goes public, probably next year.
This month it emerged that Facebook staff are planning to sell $1bn of private shares at a price that values the private company at $60bn – that’s $10bn more than January’s valuation and close to 10 times the price Russian investor Digital Sky Technologies paid employees who sold shares in 2009.
The leaps in valuation are dizzying. At its current on-paper price, Facebook’s value is somewhere between that of Ford ($55bn) and Visa ($63bn). But that’s still less than a third of Google’s value, Facebook’s arch-rival in the battle for domination on the internet.
Alan Patrick, co-founder of technology consultancy Broadsight, says we are at the beginning of another bubble and that the first breaths have been blown: “A bubble is defined by too much money chasing assets, greater production of those assets, then the need to find a greater fool to buy them.”