Zuckerberg’s shopping spree continues, this time a cool $2 billion for a gaming hardware firm that started life looking to raise $250,000 on Kickstarter in September 2012.
This is the problem with chief exec’s that cultivate their superiority (CEO, bitch?).
It helps them create an environment in which they can justify such investments because everybody else just isn’t as visionary as they are.
Critical mass
In which case someone needs to explain to Zuck the time value of money, because $2 billion today is a heck of a lot more in 84 years time when VR finally reaches critical mass and conceivably becomes a factor for a social network.
We’ve heard a lot in recent weeks about the Whatsapp purchase, of course, but in that case at least we could speculate over a selection of rationale that involved a timeframe us mere mortals could understand.
We need context
I am a big believer in the non-linearities that can lead to creative breakthrough, and Oculus sounds perfect for a small corner of some Silicon Valley giant’s R&D lab. It is worth retelling that Nokia once made wellies; the mobile phone team in the corner of that R&D lab (field?) must have gotten some strange looks for a long time. More recently Android was a wildcard for Google that came good.
The difference is that Google is believed to have paid $50 million for its punt.
Since Instagram we’ve become inured to the numbers quoted when Big Dog gets his company credit card out. In the financial markets this is even more true, because figures in the billions are a customary affair, but we should not forget that these are extremely large sums for (financially) very small companies.
These price tags are starting to be a wider problem, too. They are contributing to a palpable, rising euphoria across the tech space.
Since July last year we have had 14 tech companies increasing over 50% on the first day of trading
The transmission mechanism is clear. Oculus’s largest funding round was $75 million last December, a stunning 50,000% IRR for Andressen Horowitz et al.
With Yahoo and Google also in investment mode, nobody in the VC world will want to be on the sidelines, which drives up prices. IPO investors, down the chain, compare multiples across sectors and companies to get a feel for the value of a new issue.
Even Zuckerberg, undoubtedly very much his own man, is no island and in Silicon Valley will feed a little from, rather than just contributing to, the risk tolerance for investments.
Is there concrete evidence of euphoria? Very much so. In the financial markets IPO activity is a useful bellwether for gauging such things. Not an exact science, sure, but since July last year we have had 14 tech companies increasing over 50% on the first day of trading. One company, Castlight, has risen 4x in three weeks since IPO, is worth $3.3 billion and had just $13 million of sales in 2013!
This strong appetite from investors fuels an IPO rush that we are currently in the throes of. Everyone wants to get their IPO away before investor sentiment turns (oh the irony).
For my colleagues and I these are worrying portends and judging by the underperformance of ‘new tech’ in the last two weeks we are not the only ones getting a little jumpy.
Tech City IPO?
With Just Eat having launched Tech City’s maiden IPO last week, the timing for those behind is looking treacherous. It would be a great shame for Tech City if the IPO window soon closes for a short time.
As for Facebook, who knows what their vision will lead them to purchase next. For all our sakes, someone needs to tell them they don’t need to pay as much.