Since my column last week, many people (well, okay, my editor) asked me what can be done to avoid another tech bubble. Generally, I loathe pat, wannabe-solutions that aren’t realistic, like “pass a law that does this!” or “change the system”. So I thought I’d offer a few concrete things everyone in the ecosystem can do to help.
Of course, not everyone will do them, and of course, some of them run contrary to perceived common sense and rational economic actions during a bubble. But that’s the point. If you follow these, you won’t be that dude who makes the undeserved billion. And you still may be the dude who ends up broke when the bubble bursts. But you’ll have your pride and morality intact, which is kind of nice, I promise.
If you’re a developer or other in-demand employee going to a startup, get a nice options package but don’t be greedy. Stay the long haul and care about the company for which you work. If you’re a product consultant or a “co-founder” added on after things are going, take a reasonable cut and don’t be greedy.
If you’re a kid with a startup looking for funding, don’t be a greedy boob and keep your valuations reasonable. Let them grow over time. I heard a kid recently complain that his valuation, before his product was built, was only $4 million and his friend got $8 million. Whatever.
For everyone above, remember you’re in this to build cool stuff, and there will always be second chances. You don’t need to make $10 million before your 30. As long as your parents are impressed and you’ve got a roof over your head, you’re good for now. Make the big killing down the road. For now, make a great product and prove your mettle as an entrepreneur. The doors open to you in the future will be roughly the same if you sell for $20 million or $100 million.
Also, find other metrics that matter. I didn’t make $100 million dollars on my first (well, actually, third) business, but I made good money and a lot of people happy. I gave a lot of people jobs they loved. That stuff matters. It’ll make you feel better about yourself. And, believe it or not, it’ll help you down the road and the economy as well. Win-win.
If you are lucky enough to go public, price your IPOs reasonably. Of course this is a challenge, and the bankers are out to sucker you, but just try and avoid an absurd pop. Shoot for steadiness. If your book is wildly over-subscribed, adjust the price pre-IPO. I know. Easier said than done. Going public seems basically impossible to do perfectly, I’m well aware. Everyone just try and stay cool, okay?
If you’re a banker or investor with a middling company in your portfolio struggling to go public in order to find an exit, don’t try and fudge things or, worse, water down Sarbanes-Oxley in order to improve your chances of an IPO. SOX is not perfect, and it’s a pain, and yes, it makes it harder to go public. But that is the point. And actually, everyone, if you see SOX successfully getting watered down, my advice is to get out of tech stocks now. And kudos to everyone for calling Groupon on their fuzzy accounting metric. More of that, please. Send a message only real companies should go public.
Also, if you’re a banker, I know it’s probably basically impossible for you to NOT play the inside game and buy stocks at the book rate, let it pop, and dump in the first 48 hours of going public. So I won’t ask you to. Maybe just actually make the money you need in banking and then get out like you said you were going to in college before you got all wrapped up in it. Then give your spare money to someone who invests in follow-on seed rounds or series A. That’s where it’d do the most good right now.
If you’re a VC, sit out a deal if you think the valuations are extravagant, and don’t bid up valuations to extreme levels to win the deal. It’s a whole ecosystem, right? It’s an industry. One deal shouldn’t make or break your portfolio. But bidding them all up will definitely break the system.
If you’re an investor or angel, play to get a solid positive return over time and over a portfolio. Don’t try and be the one guy who times the bubble perfectly and wins big. They always lose the next time. Look at John Paulson. Though in his defense he still might pull it out. This happened to him last time, the bet took longer than he thought and he almost didn’t make it. But I digress. The big winner isn’t the point. Winning nicely is. With your dignity intact.
If you’re at an acquiring company, pay reasonably for acquisitions. Unless its vital to the future of your company, don’t get caught in a bidding war. Again, easier said than done, but remember every over bid is one nail in the coffin of the economy and the bubble.
Ooh I know! We should make some Grover Norquist-esque pledge! Everyone sign it and say we’ll operate responsibly. I suppose that wouldn’t work as it would just advertise a signee as someone who a hawk can take advantage of, but the whole thing is subjective anyway, and it would signal one’s intentions to not tank the economy. We can get big certificates and fancy calligraphy and frame them and hang them all at Tom and Jerry’s or at General Assembly. We can grow beards and smoke pipes like Grover and do 60 Minutes specials! If we avoid bursting the bubble, we can all claim credit, and if it bursts anyway, we can be like Han Solo and say “It’s not my fault!” and blame it all on the Cloud City engineers under the thumb of the Empire.