Published on December 11th, 2018 | by Jose Vasquez0
Is There a Tech Bubble Threatening Startup Tech Companies?
There could be a tech bubble threatening entrepreneurship rates in the tech sector.
The tech sector has thrived for the past decade. The stock market has ballooned to unprecedented heights and startup funding from venture capitalists and angel investors has reached an all-time high. But is this a sign that a tech bubble is on the horizon? And if so, how should you adapt?
Signs of a Tech Bubble
There are several signs that a tech bubble may have formed:
- High stock prices (and stock volatility). The stock market, especially in the tech sector, has been overvalued in recent years. We’re nearing the end of the longest bull market in history, and that’s resulting in prices higher than what the value of tech companies would suggest as reasonable.
- Unprecedented funding levels. We’ve also hit the peak of tech startup funding. Every year for the past decade, the average seed funding value has increased, as well as the total value of funding distributed to tech companies. That’s resulting in higher-than-normal valuations and distributions.
- High consumer expectations (and optimism). Consumer and investor optimism are at near all-time highs. Consumers are expecting exceptional returns from all tech companies—possibly to an unrealistic extent.
What Does This Mean for Entrepreneurs?
So what would it mean for entrepreneurs if a tech bubble has formed?
The biggest effect on the economy would take place if and when the bubble “bursts.” In that case, tech stock prices would fall significantly, getting closer to their “true” value, and the broader economy could suffer the effects of a broader recession.
The worst fallout from this would be investor pessimism, which would make it more difficult to secure funding for even a promising tech startup. Depending on the nature of your company, your business may also be affected if consumer spending plummets.
That said, no economic condition can make or break a business—especially if that business is founded on strong principles, with a good value proposition. If you need help polishing a business plan to be more recession-proof, or if you’re worried about the effects of a tech bubble, contact me today!