32% of start-ups fear a bursting tech bubble is on the horizon

Research from venture capital firm First Round suggests 47% of start-up founders believe there is currently a tech bubble, and worryingly, 32% think it is about to burst.

The idea of a tech bubble will strike fear into the hearts of investors and entrepreneurs around the world. An unsustainable rise in market value attributable to speculation in technology stocks and firms could mean financial disaster for millions, you just have to look at the impact of the ‘Dot-com’ bubble for evidence.

The burst of the 2000 bubble saw several prominent internet businesses collapse while others were hit aggressively with a sharp decline in share price. Cisco’s share value dropped by 86%, while the US Securities and Exchange Commission directed heavy fines towards the likes of Citigroup and Merrill Lynch for misleading investors.

One can only hope the founders being interviewed for this research sit more on the pessimistic side of the fence.

Looking at the research, 32.1% of respondents believe there is a bubble and it is close to popping, 15.2% agree about the bubble but they are safe for the moment, while 21.7% dismiss the concept. That said, despite the negative outlook, 92.1% of respondents believe this is still a good time to start a new company.

Understanding where the alleged bubble is centred is of course critical, and the research suggests areas such as cryptocurrency, artificial intelligence and VR/AR are the areas which are being over-hyped. These are of course the segments which are attracting the lion’s share of investments over the course of 2019, which might make for uncomfortable reading for some.

Another interesting snippet is the element of control. Respondents believe (52.1%) over the course of 2019 power has remained in the hands of entrepreneurs, though 68.8% think this will be wrestled away by investors over the next 12 months.

Ironically, the sense of pessimism will be one of the contributing factors to the burst of a bubble which may or may not exist. Confidence is one of the key components for markets to succeed, and the more people talk about a bubble, the more real it becomes in the hearts and minds. The entrepreneurs, some of the people who are under the greatest threat, may well be making a rod for their own backs with such pessimistic attitudes.