Leading Question

By Lori Johnston March 31, 2011

Bubble Trouble

High valuations of top private social media companies Facebook, Twitter, Groupon and Zynga have sparked unease among investors and conversations among technology leaders regionally about a potential Internet bubble. At the same time, venture capital activity in Florida remains low. The state ranked 15th in the amount of venture capital dollars invested in 2010, according to the National Venture Capital Association and PricewaterhouseCoopers.

We asked local tech leaders for their thoughts on the technology investment market.

Dan Miller, Managing Director, BizTank, and chairman, Pongo Software, and board of directors, INgage Networks

I don’t buy into [talk of a tech bubble]. I think the tech sector has experienced a faster recovery than the rest of the sectors. It’s been driven by the pace of innovation. I think we’re actually at the fairly early stages of a really long tech sector build or growth.

If you look at the largest publicly traded technology companies, those companies are sitting on more capital today than I think they have in the last 10, 15 or 20 years. That’s driving growth. They have cash to spend. There’s more competition for those larger companies to acquire smaller companies. That’s created a heightened sense of activity and has heated up the market for technology companies to get higher valuations.

What happened in the ’90s is that those investors were investing in ideas. When you start talking about Groupon and Twitter and Facebook, those are companies that actually are operating. They have real operations; they have real companies.

Tim Cartwright, President, Gulf Coast Venture Forum

Some of the large high-tech firms are generating a substantial amount of cash. Just look at how much cash Google generates in an hour. They have this ammunition sitting at the ready. There is substantial competition for the hearts and minds of the tech consumer. So there’s a lot of competitive pressure among these big tech companies, where they may pay a premium just to keep it from their competitor. That’s what supports bubbles and inflation. Take it back to 1998, 1999, 2000, with the Internet bubble. You were having two M.B.A.s with a business plan raise $10 million, $15 million. There was a lot of hysteria, a very broad base overvaluation. This is more select. You’re seeing hot properties—properties that have large subscribers or hot domain names have strategic acquisitions.

Rob Campbell, CEO, Voalté

Bubbles tend to be very cyclical. Obviously, the bubble is driven by speculation, when speculation outpaces reality. The problem with the latest Internet bubble was the underlying companies had incomplete or broken business models. All those companies that got flushed away created room for the Facebooks, the Googles. What we’re seeing now is many of these companies that are being bid up, whether it’s stock prices or pre-IPO or venture capitalists, have legitimate business models. I’m less concerned now than I was years ago simply because I believe the underlying businesses have reasonable business models.

Randy Berridge, President, Florida High Tech Corridor Council

We’re in the business of helping build the economy, and while some sectors such as cloud computing have caused a lot of speculation, we’re focused on a broad group of high-tech sectors that are closely aligned with our state’s three leading research universities—sectors that show long-range potential to create employment and grow wealth. [Talk of a tech bubble is] purely speculative.

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