20 VC 029: The Potential Upside To A Technology Bubble with TechCrunch's Brandon Lipman

The debate over whether or not we are in a tech bubble is dominating the minds of many in the tech world and today Harry talks to major player, Brandon Lipman, Co-Founder of 3DLT and writer of the recent TechCrunch Article: The Potential Upside To A Technology Bubble. Brandon shares his views on why seed deals have decreased by 300%, following from Scott Nolan's TechCrunch article, Brandon answers Does Burn Rate Really Matter, what sectors will survive or thrive in a tech bubble and why companies are preferring to raise later rounds rather than go public. They also dive into the dogfight between Meerkat and Periscope, the biggest winners from a bubble and the companies Brandon is most excited about. Items Mentioned in Today's Show: Chris Sacca and Tony Hawk with Jason Calacanis on TWIST 500 Startups: Dave McClure on Stanford's Entrepreneurial Thought Leaders MatterMark Complete Report Meerkat vs Periscope

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Hello and welcome to episode 29 of the 20 Minute VC with Harry Stebbings. Now, today's show is a very special show as we will be diving into whether a potential tech bubble is looming, why and what can be done to mitigate the effects. Joining me in this debate is none other than Brandon Lipman. Brandon recently wrote an incredible article for TechCrunch on the potential upside to a technology bubble, and he is also the co-founder of 3DLT, a marketplace for 3D goods. Before we jump into the interview, if you would like the chance to win all the books and resources mentioned in the next five episodes of the show, then head on over to iTunes and leave a review for the 20 Minute VC, and then email harry@thetwenty minute

• 0:45Harry Stebbings?

  vc.com with the name that you left the review under on iTunes. But enough from me, it's time to jump into the interview with Brandon.

• 0:58Speaker 01

  You have now arrived at your destination.

• 1:01Harry Stebbings?

  Brandon, welcome to the 20 Minute VC. It's an absolute pleasure to have you on the show.

• 1:06Speaker 02

  Thank you.

• 1:07Harry Stebbings?

  Now, you recently wrote a fantastic article in TechCrunch about the topic of the moment, are we in a bubble or not? In the article, you compared a bubble to a forest fire. For our audience who haven't maybe managed to read that article yet, could you elaborate on that idea?

• 1:23Speaker 02

  Definitely. So, I grew up in Florida, and in Florida, there's, you know, the Everglades, which is a somewhat of a protected forest area. And, you know, I learned there that, you know, there's forest fires that happen, and it's very common in Florida. And the way they look at it is forest fires are necessary for growth in that area, as trees would, you know, be burnt down, underbrushed would be...

• 1:50Speaker 02

  Turn to ash, that would all enter back into the, you know, ground and reproduce into the makings of the, basically the fertilizer for future growth and future trees and wildlife. You know, yes, there's a damage and there's animals being displaced, but overall the net effects are positive as, you know, um, there's growth for later, later stages. I look at, you know, the tech industry in the same way as big companies such as, you know, uh, larger companies that are just starting or in companies that are, might not be as strong, but look strong right now. Those types of companies might be, um, might not pan out, but later

• 2:35Speaker 02

  as they grow, as the industry develops, we'll be able to see that the, um, larger, uh, companies, they will withstand those flames and they can grow stronger from them. And new companies and new industries will be able to develop out of those, uh, prove, out of those predecessors.

• 2:54Harry Stebbings?

  I was listening to an interview actually with Chris Sacca the other day and he said, um, that he couldn't wait for the bubble to burst and it would eventually lead to all the, um, fake per- per- personalities in the valley, you know, maybe your business school graduates who don't necessarily have the passion for the technology that the real technology enthusiasts do. He said he couldn't wait for the bubble because it would get rid of them and only the hardcore would remain. Is that, is that slightly what it is?

• 3:22Speaker 02

  That's actually what got me, you know, I, I, it got me thinking about the, um, about the bubble because in his interview, I think it was with Jason Calacanis at the launch festival. It was extremely interesting to see that, that, that different perspective. A lot of people are looking at it through a negative lens, but there are lots of benefits to a potential bubble. And I think that in the long-term perspective, if we look from 2000 to now, I think that the 2000 bubble or the, you know, dot com bubble has given us so much, um, learnings that we've been, the VCs as well as entrepreneurs are taking on in the age we're at now. And I think that's going to continue. With if this is a bubble, which it does seem like there's potential aspects of a bubble,

• 4:07Speaker 02

  we'll be able to learn from the lessons from what we're in now.

• 4:11Harry Stebbings?

  And do you think, I mean, one, one problem, I think it was Chris Sacker again, sorry, we seem to be quoting Chris Sacker quite a lot here, but he did state that a lot of the entrepreneurs and tech entrepreneurs in particular nowadays weren't actually, well, they were alive, but they can't remember the bubble of two thousand, you know, possibly your twenty three, you know, your recent college graduates can't remember the bubble. Do you see that as a possible problem in the fact that they maybe haven't learnt?

• 4:36Speaker 02

  I think that it's our responsibility as founders and entrepreneurs to look back at history the same way that historians should you should look back at history to understand the future and understand how we got to where we are. You know, I was not particularly um of age to think about the bu- the two thousand bubble. I was, I think, you know, higher around twelve or thirteen years old at that time. But as I look back now, I look at the news articles, I, you know, read uh some of the pieces from some of the Harvard professors that have done case studies on it, and those are the types of things that we can use to understand the past events and how that happens. Cause then we can use that, those same exact learnings and be able to identify this in the future.

• 5:20Speaker 02

  I think that if we do that and remember that the past, you know, is significant, we can actually benefit and it won't be a problem. But is is definitely the founders' responsibility to learn from those things.

• 5:33Harry Stebbings?

  And an incredible takeaway from your article I found was the revelation that the amount of seed deals has fallen by nearly three hundred percent. Is there a reason for this, do you think? And is there anything that has caused such a sudden decline?

• 5:47Speaker 02

  I think there's two things that um were were interesting when I looked at this. I think it's this, the the amount of seed uh seed rounds are decreasing, but the amount of seed funding in in the rounds themselves is increasing. So I think it's not necessarily, and if you look at both of those, it's just a shift where we're seeing less volume, but bigger rounds. And there's many ways that this can be looked at. It can be looked at from a situation where companies need to raise more money to be able to get further within within their business at that stage. And companies are becoming more capital intensive, or their burn rates are increasing

• 6:26Speaker 02

  as the needs to to hire new people is increasing more rapidly for the C rounds. And then for to raise an A rounds, it almost seems slightly more difficult. And I think now we're looking at, you know, the C rounds. It's going to be more difficult to raise a C round than it was, you know, a year ago, which I think is not necessarily a bad thing because it's actually might stabilize some of the drop offs in the number of C companies that can come through and actually get a raise an A rounds when that time comes.

• 7:01Harry Stebbings?

  And you also you also present the case that uh series C rounds have only increased by six, was it six percent?

• 7:09Speaker 02

  I mean, one second.

• 7:12Speaker 02

  Yes, six percent.

• 7:13Harry Stebbings?

  Uh, wha- what do you think the cause is for that then, that much smaller change?

• 7:18Speaker 02

  I think that that's stable. I think there's, you know, I I mean, I look at B rounds as well, you know, they're they're increasing uh by forty nine percent, but I think that it's overall, it's those two seem to be slightly more stable than the series A and C. And I think that's because the value and the product market fit that VCs are often looking for in, you know, often later rounds are um are becoming or not going to change over time, whereas in a series A and, you know, seed, the qualifications for what a company needs to have can fluctuate. So a C C company, they might be pre, you know, pre revenue, or we see a lot of companies

• 8:01Speaker 02

  pre revenue even in a later stage, but they don't actually need to have product market fit yet.

• 8:07Harry Stebbings?

  Absolutely. And and then going back to the the seed rounds then, obviously, we we hear a lot about like Dave McClure and his five hundred startups and his lean VC model.

• 8:21Speaker 02

  Yep.

• 8:22Harry Stebbings?

  Um, sorry, uh, so we, we hear a lot about the lean VC model where you kind of do the scattergun approach, where you invest in lots and hope that the one in thirty becomes a unicorn. Is, is that really saying that that's becoming a rarity now that we're concentrating and becoming very capital intensive on fewer startups?

• 8:40Speaker 02

  Well, I think that the quality of investments, and I think that there's two things I, I find interesting. As many venture capitalists, they, you know, the, putting a lot of emphasis on valuations and working as founders. Many founders look to find the best valuations versus finding the venture capitalists or investors that can bring the most value. And I think that investors are starting to, to recognize that. And that's why they might be also scaling back on the number of deals they're making. So they can make sure they're adding enough value to the, to the companies that are in their portfolios. And if a company does succeed, that they're able to continue to fund that growth and take advantage of the wins.

• 9:22Speaker 02

  I was listening to a chat with David McClure yesterday. Um, he was a Stanford lecturer and it was extremely interesting to hear the, of how he, his view of venture capital is definitely more long term. And he's, he's still, you know, relatively in the beginning aspects of building up five hundred startups. Um, so I think that as we move on, I think the focus is definitely on not only the unicorns that are the, you know, billion dollar plus, but also the ones that can have stable growth will also be important to look at, but also the ones that can, you know, the unicorn growth is, it's difficult to predict as we're finding.

• 10:03Harry Stebbings?

  And in the article, um, you suggest that burn rates suggest a, a high possibility of a bubble. Um, how do you react then to Scott Nolan at Founder's Fund when he stated in a recent TechCrunch article that actually burn rates don't matter and it brings about positive progress faster? Do you think burn rates are very significant in looking at the potential to a bubble or, or can we detract some importance from them?

• 10:29Speaker 02

  So with Scott Nolan, he's obviously much smarter than I am, but the way I look at it, I do see burn rates as a possible indicator of how capital efficient a company is being. If a company is, you know, spending a wild amount of money and they're, you know, in A rounds and they've only raised a certain amount, that does tell you they're going to have to raise more money, you know, quickly. And they might not be being as efficient with the amount of money that they have raised.

• 10:58Harry Stebbings?

  So you think it's quite dangerous to raise quite a large round because it can lead to capital inefficiency?

• 11:04Speaker 02

  I think the, it's not about the round size, I think it's more about how quickly you're burning through the money. Because if you raise a small round and you have a, you know, a burn rate that is not in line with the amount of, you know, round you raised, and that might be a sign that you're not being as efficient with the capital you were given.

• 11:24Harry Stebbings?

  Okay. And say a bubble is potentially coming. Are there any sectors or companies in particular that you think will survive or even thrive in the presence of a bubble? And, and, and why?

• 11:37Speaker 02

  I think financial, the financial tech industry and the banking industry, we're starting to see some, some disruption there. And I think that's going to definitely continue as time goes on. I think as, you know, with, with technologicals, when they're, when they exist, they penetrate the entire economy. And I think that if the banking industry would have this difficulty similar to what it did in, you know, the 2000 bubble, that it could potentially be an interesting space where small entrepreneurs can make a big impact. Um, I think SaaS companies, I see them progressing through a bubble. Um, I think that companies that are the large companies that get enough funding, they'll continue

• 12:22Speaker 02

  to need the same amount of software that they need now. And I think that's going to continue to grow. Cause they've, they've built on an agile platform that can withstand those, you know, long-term fluctuations.

• 12:37Harry Stebbings?

  Absolutely. And, and then can you see any sectors which will deteriorate drastically?

• 12:43Speaker 02

  I see consumer tech as an area where, I mean, from a service level, I see there being a potential fluctuation or a difficulty. Because a lot of these consumer tech startups are starting.

• 12:57Speaker 02

  Or making assumptions too early and potentially not having the product market fit that they think they have. And we could see some of that to, you know, dwindle out when, if a tech bubble would exist.

• 13:09Harry Stebbings?

  And one aspect I'd love to touch on with you is the IPO market and what you infer by more and more companies raising later rounds of funding. For example, maybe in Uber, um, I think they recently raised one and a half billion, if I'm right. Um, any, any regardless, and should it maybe, you know, in the two thousand, they would have IPOed. So the longer time for companies to go public, um, does that suggest a bubble?

• 13:38Speaker 02

  I think it, I don't necessarily think it's, uh, suggest a bubble. I think it suggests a shift in the way that companies are run and I think that's not necessarily a bad thing. Um, I think the last time I looked, I was online here, um, Uber raised four point nine billion at a forty one billion dollar valuation. At their Lyft, as you know, that's in total. And Lyft has raised, you know, eight hundred and sixty two and a half million at two billion dollar valuation. Those are two, you know, two comparable companies, but their valuations are completely different. And when you think about that, does that show that Uber is necessarily, uh, growing faster than Lyft?

• 14:22Speaker 02

  Well, capital wise, yes, but does that mean that their offerings are completely different? Not necessarily. And I think that's, um, shows to a shift in the way that the private companies are working. And then when you look at like the recent IPO this week of Etsy, um, you know, they're a ten year old company and Slack. You know, is a, you know, two year old company and they, Slack is valued at two point eight billion dollar valuation where Etsy is, you know, three point five billion dollar valuation, uh, ten year, uh, Etsy has been around for ten years. That's a gigantic, um, difference when you look at the amount of valuation. And Etsy just went public.

• 15:04Speaker 02

  And I'm not sure if that's necessarily a sign for a bubble, but there's definitely a deviation between some of the private funding versus the public funding.

• 15:12Harry Stebbings?

  And do you think late stage financing will continue to displace access to the IPO market?

• 15:18Speaker 02

  I think based on the data, when I see that, you know, late stage funding is increasing. At least in this last quarter, I I would want more data around that, but I think that there's a definite possibility that trend continues. The Madam Mark, which is where I got my data, they recently came out with the, instead of just the quarter, midpoint quarter one midpoint, they came out with the entire quarter one for this year. So I'm wanting to definitely compare my data again to see if there's been any changes in the last month and a half.

• 15:52Harry Stebbings?

  And links for these can be found in the show notes for today's episode.

• 15:55Speaker 02

  Yes, I'm definitely sure.

• 15:56Harry Stebbings?

  And if it's okay with you, can we move on to a quickfire round?

• 16:01Speaker 02

  Sure.

• 16:03Harry Stebbings?

  So Meerkat or Periscope, who's going to win? It's been a bit of a dogfight and I saw a blog post you wrote about it, so I'm intrigued to hear your thoughts on this one.

• 16:13Speaker 02

  Yeah, I, my first experience with Meerkat was a really interesting experience, that magical moment where you're able to see someone was pretty much instantaneous. I think Periscope, they have a advantage in regards to growth with, you know, being able to piggyback off of Twitter and using, having such a strong relationship with them and now actually being acquired by them. But I think that they both can win, but at this point, Periscope does have a significant advantage. I think Meerkat, if they find a niche or really clarify their, their, find a new niche, if it be using Facebook or another site like that to, similar to what they did with Twitter, I think there's a definite possibility for them both to win.

• 16:58Harry Stebbings?

  And Periscope were acquired pre-product launch, weren't they?

• 17:02Speaker 02

  Yes.

• 17:03Harry Stebbings?

  Again, does that suggest bubble light status for the tech economy?

• 17:07Speaker 02

  I, I, I can't say on that. I, I think that it's interesting. It could be a potential indicator that there's, you know, there's pre, it's quite quick, but I think the relationship was there previously, which allowed that, you know, allowed that to happen. So I'm not sure if that's a sign for a bubble, but it's interesting thing to look at. And if that trend continues, that would be definitely something that could be a sign for a bubble.

• 17:36Harry Stebbings?

  And if you were to say one company in technology that you're most excited about for the future and why, what would it be?

• 17:44Speaker 02

  That's a very good question. One company I would say, Mattermark, I'm a big fan of them because the data that they're gathering, I think is extremely interesting and around venture capital. And I think that the other companies I'm extremely excited about are ones that are forming, I think that that's the one biggest one, but I think if you focus around companies that are creating long-term missions and not looking at just, you know, small niche products, I think those are the ones that are going to succeed for long-term because they have a larger scale for growth.

• 18:20Harry Stebbings?

  Fantastic. And Brandon, thank you so much for coming on the show. I've hugely enjoyed chatting with you.

• 18:25Speaker 02

  Thank you.

• 18:26Harry Stebbings?

  Now, for all the resources mentioned in today's episode with Brandon, head on over to our blog at www.the20minutavec.com where they're all listed for you to take a look at. And one in particular that I recommend is Mattermark's publication, which is incredibly helpful in deciding whether or not we are entering a bubble. Thank you so much for listening and we look forward to seeing you in the next episode.