Waiting For The Silicon Valley Space Bubble To Burst
Is Silicon Valley in Another Bubble . . . and What Could Burst It?, Vanity Fair
“And this is where it gets particularly murky. These are private companies, with private balance sheets, and the valuations they ascribe to themselves aren’t vetted in the same way by the S.E.C. or public markets. These start-ups, in other words, can command much higher, and at times fabricated, valuations. One successful venture capitalist told me that he recently met with a unicorn [tech start-ups valued at $1 billion and upward] that was seeking a new round of funding. When he asked the C.E.O. why he had valued his company at $1 billion, he was told, “We need to be worth a billion dollars to be able to recruit new engineers. So we decided that was our valuation.”
Keith’s note: Silicon Valley is space business crazy right now. Everyone seems to want to have a space start-up and some of them are now buying out and devouring one another – based on hype, imaginary valuation, and the promises of space snake oil salesmen. There are smart people out there – with smart ideas and sound business plans. So far they seem to be the exception – not the rule. I have seen this movie before. Unless some actual products (with profits) emerge this bubble is bound to burst – regardless of whether Silicon Valley itself pops. As a friend of mine often says, this must have been what it was like when Rome was about to start burning.
I’m reminded of the Founders Fund saying “We wanted flying cars, instead we got 140 characters.” (So true.)
http://www.businessinsider….
We knew the flatter top-side of an S-curve was coming since the 90’s, after having seen the rapid rise and spread of so much new tech in every day life since the 80’s. What I didn’t expect was just how pedestrian the flat top-side of that S-curve would be, even acting against the take-off of real and new ideas that could start the next S-curve.
After all – a little app is where the next big thing is, right? Not in actually making something new and real. Perhaps why Mr. Musk getting his hands dirty with real things like rockets and cars and solar cells (all oh, so 70’s!) draws such admiration.
In less than 10 years we went from Gagarin to Armstrong (plus building extensive ICBM/SLBM arsenal) because the big decision makers put premium on rockets and related hardware (much of it had to be developed into working form), and almost all components were made in USA (most of chip companies in Silicon Valley business came from govt). These days premium is placed on surveillance and information systems, all almost all components (plus their related sub-contractors) are made outside USA. In addition there’s a lot more “gaming” of stock market i.e. options trading, options insurance (some bet money the stock will tank and then get profit from insurance payoff).
Unlike the last tech bubble, this one is mostly inflated early VC valuation (rather than companies who went public way too early). I wonder how this is going to play out once it pops.
At minimum, maybe the bay area housing prices will finally come back down to Earth. I’m sure the younger folks at Ames would appreciate that.
Is there a link or evidence to back up the assertion from this post that many of these startups are space-based?
DId you read what I wrote? Did I say that “many of these start-ups are space-based”? No, I did not. I said “Everyone seems to want to have a space start-up”. That is not the same thing. Did you read the article?
I read your post and the entire article. Space startups are not mentioned in the reference whatsoever. The post asserts that space startups left and right are buying each other out. I simply asked for some evidence to back up this assertion. Even more specificity would be nice – what startups are you referring to?
“Anonymous Coward” I never said there was any mention of space startups in the article, did I? I linked to the entire article which talks about start-ups and I then made my own comments – clearly identified as my own – about a subset of these start-ups. As for “evidence” – I am not going to go create a summary of the past several year’s worth of posts and news articles and conferences on the topic just because you have not been paying attention.
Yes, I see that. Hence, my original question as posted still stands. How did you come to form these comments? Without providing any substantive supporting information, what’s the point? It’s not an unrealistic request nor meant as derogatory towards your post; simply a question. If you don’t/can’t/don’t want to provide supporting information, that’s fine – it’s your blog. I guess I’ve made my point – I don’t have anything else to say on the matter.
How? Gee, let’s see, I have been editing NASAWatch for 19.5 years and have been posting on space commerce since, oh, 19.5 years ago. Clearly you are new to the topic and have missed what Google, Microsoft, SpaceX, PlanetLabs, Urthecast, Planetary Resources etc etc etc have been doing and where they got their money for these space startups. Suggest you find another news website if you find our research to be substandard. If you think I am incorrect then do some research to prove that I am incorrect. Otherwise, have a nice day.
I had the same question so I don’t think Anon Coward is that far off base. You post an unsupported connection between the Vanity Fair article and your assessment which ends with the inflammatory suggestion that the situation is “like when Rome was about to start burning”.
Where did Google and Microsoft get their money from? uh, search and software? Space X is not exactly a product of the current hype cycle.
No one has a lock on the truth – even someone who has written a blog for 19.5 years.
btw, Its Urthecast not Urthesat.
Next time I’ll be sure to resist your click bait “article”.
Rome did not burn at the end – it was “down-graded” in favor of a capital to the east, former Constantinople, now Istanbul. The Roman Empire did not have a cataclysmic end, and ended with a whimper more than a bang for various internal and external reasons.
Don’t forget the full history of that. The Western Empire didn’t move to Constantinople, they “relocated the company headquarters” to Ravenna. It was all part of the “reorg”, where they split the “departments” into two new “companies”.
Now you had two empires that could “refocus” on their “core competency” with a form of geographic “devolution”. (sound like any Union Jack kingdoms you know?). Ravenna was more defensible than Rome, and it worked for a little while.
When the Western Empire crumbled, Constantinople was eventually able to “buy up the remaining assets”, but the old problems still remained, it was never as good as it had been, and it just kept shrinking until it disappeared.
You can’t make a bad company good with a “reorg” “split” “division” or “refocus”.
Yea and then people with names like Anonymous Coward and Moosebump advising me, how can I lose? As for click bait – you clicked – not me. If you think I am incorrect then do some research to prove that I am incorrect. Otherwise, have a nice day.
Tough crowd, Keith.
You can’t tell me the Flooz.com Mars Colony isn’t going to be a success…
“ye of little faith” – Matthew 8:26
lol .. ya that domain is already up for sale…
SpaceX and Blue Origen don’t seem to be seeking venture capital, which is understandable, since although there is some potential for profitability there is little chance for the kind of exponential expansion and immediate returns which venture capitalists demand. Orbital went public early and has survived but certainly hasn’t made a killing. Early investors in Iridium lost money despite its technical success. Anyone who expects to get rich quick in space will be disappointed, but by the same token I don’t see the flurry of shakey investments that would typically lead to a crash.
Blue Origin seems to not need external funds. SpaceX did raise some via Silicon Valley.
SpaceX recently raised $1B, mostly from Google, and has early seed money from Founders Fund and DFJ to the tune of about $100M. Jurvetson has been quoted as saying that he would love to invest more in SpaceX, but that it just hasn’t been possible. Much of the money propelling SpaceX now comes from NASA funding for specific projects, like commercial crew, and fulfillment of their now near-60 order launch manifest.
Musk has stated that they make a 70% profit margin. If that number has held up, then they stand to clear around $5B by clearing their current orders, NASA funds for crew notwithstanding.
That all feels pretty solid to me. They clearly don’t want to risk that income stream, which is why they are taking their time on the return to flight.
My point exactly. I have not seen any concrete figures this large, but assuming they have about $1B in investments and $5B in orders, that’s not particularly speculative.
Keith’s note:
That is EXACTLY what you would expect to happen. The speculation phase were capital starts rushing in on the hype. Every major movement begins with this phase. Everyone wants a piece, no one wants to be left behind when the boom starts. Remember the dot com boom?
Generally this will lead to over production. Companies then have to start slashing prices and innovate their butts off to stay in the game.
The washout, unproductive and uninnovative companies go bankrupt, assets are bought up for pennies on the dollar, market leaders start to emerge (usually the entrepreneurs are bought out at this time also as mergers start taking place)
Excellent Documentary on the Origins of SV.
http://www.pbs.org/wgbh/ame…
More DARPA funded innovation:
https://en.wikipedia.org/wi…
https://en.wikipedia.org/wi…
Smart and sound business plans survive and those without, don’t? Sounds more like a correction to me, which can be a good thing. Not even close to “Rome was about to start burning.”
The commercial space business has different segments. Some may have a better chance at success than others. The space tourism segment is risky but has a high pay-off potential. Is it more risky to make a sub-orbital flight than to attempt an Everest climb? There could be more capacity for the former. Will rich adventure seekers pay enough for it to be profitable? Time will tell. Another segment: LEO smallsats with cameras have to deal with a downlink bottleneck and no free spectrum. But their profitability depends on imagery throughput and timely delivery of customers’ orders. How can that conundrum be resolved? Like the days of ’49 those who supply the ones seeking Gold may turn out to be the winners.
well…prove it or shut up