Bubblewatch

The What

I gave a talk at the Design Of Understanding conference few weeks ago about technology prediction, a part of which was about the role of hype and bubbles in technology, been meaning to write it up, but this is it in a nutshell.

Bubbles are the last stage in the Creative Destruction cycle as one technology overtakes another.

This sequence is quite well described by Carlota Perez (see slide above)

In essence, the new is always suspect and the old has all the big battalions on its side to prevent the new succeeding. Machavelli recognised this a long time ago when he wrote:

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.

For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries … and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.”

The Why

For the Best New to emerge, there is a period of Darwinian evolution as all the new new things compete to get over The Chasm and establish themselves in the market. In technology, the very disruptive new things can often asymmetrically hurt the business models of the Old (ie the small newcomer can afford to undercut the existing behemoths for a while), and this is of course exploited (in what we call "Pirate World" )

But the Pirate World in itself is not enough to shake the Old, which has many advantages - cashflow, and typically recourse to other blocking forces like political access and regulation, and besides has the resistance of the late adopters and the reluctance of the lukewarm supporters of the new on its side. Also, the New often needs complementary infrastructure and other parts of its own value delivery chain to be built, plus money to bribe persuade the reluctant mass market to buy early.

The How

The role of the Bubble is to give the New Things a sufficiently large amount of fast, cheap money (as in you know most of it will be worth nothing) - a Tsunami of Cash - to wash the foundations of the Old away. The role of Hype is to stoke the Bubble, so that the Wisdom of Crowds is converted via Irrational Exuberance into the Madness of Crowds.

Perez's view is that the bubble then leads to a "Golden Age" when the services can be built out in relative calm, on massively discounted assets (eg the huge amount of pipe, power, port and ping left over by the dotcom crash). My observation is that the creation of the new involves the destruction of the old, but also carries significant collateral damage - the destruction of the Irrational Investors' wealth (or not, if you are a bank and too big to fail) which means not all new agers will see it as Golden.

The So What.

In my view, the Facebook IPO is the final act of the Hype cycle of the coming Social Media bubble. Just make sure, in your Irrational Exuberanace, that you are not one of those creatively destroyed in this last part of the cycle.

Incidentally, for the Dinosaurs, Riepl's law shows that the Old do not die, they gradually fade away....

A very useful update comment:

I found Fred Wilson interviewed Carota Perez at Web 2.0 Expo last year, and this copy of her presentation at Web Expo 2.0. Soem of what i mention here she talls about. Cracking stuff, though I'm not sure about her synthesis of the latest financial bubble burst.....

It's been quite interesting, that despite all the predictable booster hype, quite a few articles out yesterday on the actual value of Facebook feel $100bn might be too high - to me the real shocker was that even Henry Blodgett doesn't think it's worth $100bn at the moment (a core value of c $75 according to his calculations). I await Mary Meeker's pronouncement with eager anticipation

And of course a few of our troublemak... loyal readers asked me the same question. What do we at Broadstuff Towers think its worth?

Well, the analysis we did yesterday would suggest that if you think it is the "next Google" then its about 1.75 - 2x overvalued compared to Google at IPO, so c $50bn - $60bn would be a much safer bet. If you think its "worse than Google" then head for the hills now, if you think it is 2x better, then buy - but you need to know why you think this. Based on the Broadstuff Digital Bubble Atmosphere Exposure* methodology, I'd estimate it will have an IPO valuation of c $75 bn +/- 10%

So the real question, assuming you are in for the long haul, becomes "how sustainable do you think it all is" ?

There is a nice article on Slate today asking if Facebook is a Good Company that goes down this line, and this comment hit me:

Facebook’s all-encompassing mission to “make the world more open and connected” seems positively zany. It’s not only that Facebook is ambitious; lots of Web companies, especially Google, strike the same revolutionary tone. What’s different about Facebook is its product: Facebook is us. You go to Google for Web pages, you go to Apple for computers, and you go to Amazon for stuff. What does Facebook give you? Me and you and everyone we know. Or, to quote another movie: It’s people! Facebook, is made out of people!

As far as I can see, Facebook's "analogy" business model today is mainly to erect billboards on our digital social pathways, and try and get us to turn off the road every so often to buy digital souvenirs. If this sounds suspiciously like the "eyeball" arguments that launched a thousand failed dotcoms, you'd be right. To succeed therefore, it needs to navigate the travails of its own S-1 warning:

If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed.

But its also more than that - it's not enough that they don't fall - to justify this valuation over time, these things all have to go up, by more than an order of magnitude by our calculation.

And the next 800m users will not be as wealthy as the last 800m, and after that there aren't many left to find - so additional revenue is not going to come from a pure volume increase, but from a value per user increase. So you have to believe that there will be more money from our mobile usage, more user activities to keep you on the site, more games played, more billboards, and - The Ultimate Goal - that the billboards will be far more targeted than anything that has come before so advertisers will pay far more per view than today.

And to do that you have to intrude on privacy far more than anything has done before.

And for that to be viable you have to believe there will be no backlash to further privacy erosion, social or legal.

Which I don't. We have neen tracking concern about privacy, and it's been growing quite rapidly in the last 2 years.

Which means that Facebook's core business is going to get harder and less profitable to run over time. I don't believe there are major new economies of scale after 800m users, so no new scale benefits. So it comes down to whether you believe they can use the $5bn or so they raise to buy their way into more stickiness and newer, better and more profitable revenue streams. Which I don't believe they can do, at least in the short to medium term (I cite Skype and YouTube as evidence).

I do believe that if anybody can pull it off it is Mark Zuckerberg, he has successfuly navigated all the landmines to date - but he has done it with majority ownership of a private company. But can one do the same with a much scrutinised public company, is the (tens of) billion dollar question?

*Take your digit, expose it to the atmosphere....(Actually, I read a paper once that argued asset bubbles inflate underlying values by an average of c 40% - it was on the Internet, so it must be true....)

Now that Facebook has filed it's S-1 it is possible to look at the actual reported numbers, which are in short for 2011:

Revenues £3.7bn
Operating costs 2bn
EBIT $1.7bn
Tax $0.7 bn
Profit $1 bn
845m users

The chart above compares the Facebook valuation against fundamentals with Google. Note that I use Google's IPO filings, its actual performance in 2003 turned out to be far better (c $1,5bn revenues and $350m profits), whereas Facebook's probably won't be.

What it shows is that Facebook is in essence trying to get about 15% more value per $ of revenue (or 75% more if you plug in Google's actual 2003 performance), and underlying that is an assumption of a c 2 x valuation per user and per user dollar earned vs Google. Now Google overperformed, so it's not unbelievable at all that Facebook will hit its valuation too, but as it has set the bar higher Facebook will still be under more pressure to deliver the results than Google was.

So, what do we have to believe to believe that Facebook is worth the $100bn?

Firstly, you need to believe that the numbers are even achievable. A valuation of $100bn on a user base of 845m implies a valuation of c $118 per user, within a reasonable timeframe. In financial modelling that is usually taken as 5 years. There are about 2 billion people online today, most estimates think it will be about 3-3.5 billion in 5 years or so time, a reasonable estimate of the the maximum Facebook user base is probably in the region of about 1.5 bn, ie roughly double today, so let us assume the endgame is the valuation of $100bn over 1.5m people, ie about $70 per person in 5 years time. A simple approximation therefore is that Facebook needs to go from c $70/5 = c $15 ARPU, from the c $4 today. Incidentally, Google's ARPU is about $18 today. So it comes to this - do you believe that Facebook can eventually make the same sort of ARPU as Google does, and keep its current market share? Bear in mind that the next 800m people Facebook adds will have much less disposable income than the current 800,000, so the ARPU growth in ratio terms is far higher than Google had to do, as it grew from a smaller base into a wealthier market.

Secondly, long term, ultimately valuation is based on profit. Facebook has a higher profitability than Google at IPO, at c 25%. Google's IPO was c half of that and it only hit the c 25% sort of ratios c 2 years after IPO, and has more or less stayed at around that level. Google now has a c $150bn valuation on c $40bn revenues and c $10bn profit, so for Facebook to justify $100bn longer term you have to believe it can hit c $6-7bn profits, ie revenues of c $24-28bn in about 5 years, and maintaining profis at about 25%. So the question is do you believe there is a sustainable 6-7x growth in profits?

Thirdly, to believe the above two things, we pretty much have to believe that Facebook has as easy or easier a time in the next 5 years than Google has had, ie you have to believe competition and regulatory interference (little surprise the Facebook is beefing up its lobbying arm) will be at worst the same, preferably better and that it makes better use of its cash in funding its growth.

Now this is not a "proper" analysis, but it does bracket the relative IPOs and trajectories for comparison. What it boils down to is that Facebook has set a significantly higher value per dollar earned and user gained than Google, and you have to believe Facebook gets a fairer wind for the next 5 years than Google had over its first 5 years post IPO to justify the $100bn valuation. In other words, you heve to believe it is a (2x) better company than Google.

Do you believe that?

We were asked last week by the Grauniad to comment on the Facebook IPO valuation (see here), and to contrast it with Google, as excitement increases (or maybe not). The valuation I will deal with later, but the compare and contrast with Google is very interesting. In a nutshell, at IPO Google:

- Had revenues of c $1.5bn and had been profitable for several years, making c£350m in the pre-IPO year
- Was a $23bn IPO, ie a ratio of about 15 of IPO $ value/$ revenue, and sold c 8% of its shares at IPO
- Had c 50% of the search market share of about 1bn people online at the time, and was achieving about $2-3 annual revenue per user (ARPU)
- If you assume that translates into about 500 million users, Google's IPO value per user is about $50
- Had been going about 7 years

Facebook is something like this (considerable connjecture, as its reported finances vary widely):

- Revenues of between $2 and $4bn in 2011, profits between breakeven and $1bn (depending on who you read)
- Is seeking a $80 - 100bn IPO, ie a ratio of between c 25 and 50 (on $4bn and $2bn revenue estimates respectively) IPO $ value/$ revenue, and will sell c 10% of its shares
- Which translates into a c $2.5 - $5 ARPU of current users
- Has c 800 million registered users, of about 2bn people online - about 40% of all users - at $100bn that is a $125 per-user valuation
- Has been going for c 8 years

So, Facebook and Google have quite a few similarities at IPO, but there are 4 glaring differences:

- Whichever way you look at it, Facebook's valuation as a ratio of its business fundamentals is 2-3 times higher than Google's
- Facebook's user base is expected to grow by c 25% - 33% next year and revenues are expected to grow by a similar amount. Google more than doubled its user transactions and revenues in the year after IPO.
- The ratio of IPO value to user ARPU was c 16, for Google, c 30 - 50 for Facebook
- Arguably, Google faced less opposition from elsewhere (privacy etc) that could impact the business model profitability.

My take is that Google IPO'd earlier in its growth trajectory, and was able to more easily "grow into" its IPO value both because it had a lower valuation as a proportion of its fundamentals, and it had more growth in it as less users were connected at the time and revenue is not bounded by registered users but by number of searches per user.

Now, as to the Facebook valuation - is $100bn overvalued? The answer is "what do you need to believe to get to $100bn". If you believe it is worth $100bn, then you need to believe that:

- That the ARPU of c $2.5 - $5 per user can be made to fund a per-user valuation of $125.
- Google had $2-3 ARPU on $23m valuation, and ARPU is c $20 today - so Google hit its numbers. Do you believe Facebook can make a similar jump in ARPU?
- There is probably about a maximum doubling of Facebook users possible, so you have to believe by far the bulk of this growth is in revenue per user from Ads, games etc.
- That Facebook's business model is very scalable, and that there are better economies of scale in Social Networks than in Search so profits are long term sustainable.

So, what do you believe.....

This is a classic dotcom IPO play (small number of shares on sale, lots of hype, very high valuations). Very few make the grade. Google managed it, and more, and today has a comfortable $150bn market cap - but Facebook has set itself a far higher set of bars. In other words a lot more things have to go right, for a long time, for Facebook.

The really inteesting thing will be when Facebook's numbers are published, and every analyst worth their salt will try and work out how the above will be achieved.

But one thing is for certain - this is the starting gun for the Social Media bubble, as we predicted a year ago (see the Broadstuff Bubble-O-Meter above, we started it about this time last year), and we shall now see the extraordinary madness of crowds in spades - as Chris Dixon predicts:

- a bunch of second-tier social media companies go public to satisfy investor demand for "social media allocations" (facebook's reportedly small float of 5b will make this more likely)
- high private valuations for social media companies will last at least another year
- the press will write thousands of breathless stories that make it seem like the future of western culture depends on new facebook revenue streams (see coverage of google's business model post-IPO)
- facebook will continue to do small talent acquisitions until they have their "Google Video" moment and then like all mature tech companies will start acquiring real businesses for 1b+ valuations.
- facebook will - in the eyes of the press - go from darling to "evil" over the next 5 years. (again, see google coverage). (My note - it is already see as more evil than Google ever has been)
- the next 1-2 years will mark the end of this "Patterson cycle", after that, really interesting innovation will start gestating for the next cycle.

The next post will be on the Patterson cycle and the role of Bubbles...stay tuned.

When Web 2.0 broke out in the mid noughties, Deli.cio.us was one of the main services pointed to as part of the New Wave. Now it has been resurrected. What is more interesting is who the the owners are - Liz Gannes on alt.hings.D

New owners Chad Hurley and Steve Chen (a.k.a. the creators of YouTube) have ported Delicious over from previous owner Yahoo, and are ready to show their first revision to the public.

Expectations aren’t terrifically high for the new Delicious, given the rareness of tech comeback stories and the fact that Delicious was never really that popular. But we can’t help but watch, given Hurley and Chen’s magic touch at YouTube.

As Liz says, this was not eventually a major part of the Web 2.0 movement (though it has its own dedicated following) and was bought by Yahoo, who essentially strangled it before selling it on for a song.

Far be it for us to suggest that this goose is being fattened up for the Bubbletime....and postulate how many other defunct mid-noughties brands will become Laz.ar.Us brands....

News today that Ning managed a $200m all-stock sale to Glam Media - AllThingsD:

Glam Media, a social content platform for sites primarily targeting women, said it’s buying Ning, the custom social-platform start-up co-founded by Marc Andreessen. The purchase price wasn’t disclosed, but sources close to the deal said the sale price was $200 million, mostly in stock. Glam has been eyeing an initial public offering, so shares being part of the deal is not a surprise. I had reported in August that Ning was on the block and had been talking to a number of companies, including Google and Groupon. The sale price is well below previous loftier valuations for Ning, which topped $750 million several years ago. Its venture funders have put close to $120 million into the company since it was founded in 2004.

Timing is everything, Ning was an early-generation SocNet that didn't sell at the time its contemporaries like Bebo, MySpace et al did, and has been superseded by next-generation ones. This is a face saving sale for the Ning founders and a part of Glam's "pump up the volume" of traffic pre IPO.

But this capitulation by the Ning founders also points to early signs of a deflation in The Bubble - Groupon has pulled its IPO (to be seen when it has another shot), and Facebook has now been pushed back for another year. Be interesting to see what Zynga does, given it is another of the recent Tech darlings that has recently filed a $1bn IPO.

If the last Tech Bubble is anything to go by, there will be a series of deflations like this followed by increased inflations in this one. Too early to all this deflation, but definitely a reduction in inflation.

Update - contra indications to a still infalting bubbleworld - an Incubator's Incubator! (hat tip @bobbiejohnson)

In a post earlier today we noted that the problem with a blog like TechCrunch is that its Economics will conflict with Ethics, most specifically the Ethics* of being part of of a large corporate - "Fast and Loose" is great for a small independent organ, not so good for a slow and tightly run large media empire. When you are a small organ you can both write about, and invest in, the same companies. You can't as part of a large corporate media empire. Michael Arrington, TechCrunch founder, has pretty much laid this dilemma out in a post on TechCrunch in what looks a lot like an ultimatum to his acquirers:

We’ve proposed two options to AOL.

1. Reaffirmation of the editorial independence promised at the time of acquisition. Given the current circumstances, that means autonomy from Huffington Post, unfettered editorial independence and a blanket right to editorial self determination. To put it simply, TechCrunch would stay with Aol but would be independent of the Huffington Post.

or

2. Sell TechCrunch back to the original shareholders.

If Aol cannot accept either of these options, and no other creative solution can be found, I cannot be a part of TechCrunch going forward.

AOL are unlikely to be able to do (1), for 2 main reasons:

- They are a large corporate and a great, rich lawsuit/hate campaign target for any pressure group they upset, so allowing their Tech organ to effectively look like a DotCom style market analysis business for it's Editor's investment fund is a PR disaster and maybe a legal one. Remember Henry and Mary and all that from last time round - the resulting scandal made the SEC force banks to drop doing both analysis and sell side activities in the same unit and pay large fines ( Purely out of goodwill, of course ).

- Even worse, AOL are co-investors in this same startup investment fund run by Mr Arrington, doubling the conflict of interest complications

For these reasons the financial and legal risks are probably too large to give TechCrunch pure editorial independence, especially now.

Option (2) is quite hard as well - If they sold it back so soon after buying it, at a loss, they would looks like fools and no doubt prompt all sorts of questions about their management competence. Senior heads would roll. If they tried to sell it for more, who would buy?

This is a real sign of the Bubbletimes, this whole brouhaha wouldn't be happening without the silly money now being thrown at Silicon valley technology startups, and all who sail with them. In fact one wonders why TechCrunch sold to AOL when it did (Sep 2010) as the Bubble was already evident (we opened our Bubblewatch section in April 2010) but to be fair it was only visible to geeky trend watchers like us - the really obvious froth only started about February 2011 (this year) after AOL bought HuffPo. One imagines a certain amount of D'Oh at TCHQ soon after that

In our early post we pointed to the interesting insight into the economics of a Tech blog that the TechCrunch datasieve is opening up, but putting the backroom negotiations on the front page is a new one on us old M&A hands too. And given that that post has set the scene for this one, we do now turn a slightly quizzical eye at the alleged independence Messrs Siegler and Carr claimed they have

In that post, I also commented on Stowe Boyd's point that this was looking like a tragedy like Titus Andronicus and wondered it was not a tragedy or even comedy. I am wondering now if this is more the Theatre of the Absurd....and here we all are in the front row.

*Please note - When we talk about Ethics here, we are not talking about Morality - we are talking about What Gets You Flamed/Sued/Fined/Incarcerated.

There have been some interesting behind-the-screens revelations of TechCrunch's modus operandi as it implodes (or whatever its doing) - MG Siegler:

First and foremost, the concept of an “editor” at TechCrunch is essentially just a title and nothing more. Generally speaking, neither Mike nor Erick (TC’s two “co-editors”) are overlords that dictate what everyone else covers. With a few exceptions (mainly for newer writers), no one person even reads posts by any other author before they are posted.

Traditional journalists may be appalled to learn this. But this is a big key of why TechCrunch kicks their ass in tech coverage. We’re fast and furious in ways they can’t be, because they’re adhering to the old rules. Are there benefits to those old rules? Sure. But in my opinion, the benefits of the way we work far outweighs the benefits of the way they work.

If you want a more objective take, simply look at the number of tech stories we’ve broken over the years versus the number any old school publication has. Our system works.

And it works because instead of a reliance on top-down management and editing, the emphasis is on hiring the right people. TechCrunch works because we’re a bunch of driven reporters with great instincts that excel at working independently. Sometimes junior writers hone those instincts by watching senior writers and asking questions. And there is plenty of good, healthy collaboration. But for the most part, it’s very a much a trial by fire — only the strong survive.

.....

Mike certainly could have that power if he wanted it. Again, he is the creator and the driving force behind the site. But he’s smart enough to know that the site wouldn’t function as well that way.

Instead, he sits back and lets the rest of us do what we do. Again, he’s hired extremely well. He knows we’ll kick ass without any oversight from him. In fact — and I think he’d be the first to admit this — sometimes any guidance from him can be a distraction. “Hey did we hear about this?” “Yes, Mike, we covered that two weeks ago.” “Oh. Okay. Carry on.”

Then Paul Carr (apparently writing at the same time as MG above, apparently unknown to each other)

For one thing, TechCrunch writers edit and publish their own stories. We don’t have a morning editorial meeting in which Mike — or anyone else — signs off on stories; we don’t have an editorial work flow at all in fact. Generally speaking, Mike doesn’t see stories until they appear on the site and if he has any input on what’s written it’s given after the fact. I have never, ever known Mike to tell even the most junior writer what line to take on a story. A personal example: I once wrote an extremely negative post about a company in which one of Mike’s friends is a significant investor. I heard nothing from Mike when I posted the piece. It was only months — literally months — later that he mentioned to me in passing how many calls he’d received complaining about the piece and demanding that he “do something” about me. Mike had laughed them all off: he doesn’t interfere with his writers.

Low Overheads, Low Cost Management and Low Cost writers (I don't know how much the writers are paid, I'm assuming they are mainly on freelance rates) - a lesson in Economics for the serious News Organs if ever there was one.

But it doesn't come without risks, and I think they are around what Stowe Boyd calls Linelessness, in that the New Media does not accept the invisible lines of the Old....

Even at a old school bastion of journalism like the NY Times, editors and authors have to pick what stories to follow, out of the infinity of potential stories in the universe. There is no infallible, objective mechanism to pick stories, one that is fair and unbiased in some truly general and provable sense. The reality is that all organizations (and individuals) have to settle for extreme approximations of what a hypothetically unbiased approach to news coverage would produce, if such a thing actually existed.

Arrington’s heresy in all this is the simple fact of owning stock in the companies that he and others at Techcrunch are covering. This was old news years ago, when Mike was a small entrepreneurial blogger, and even later as the head of a go-go tech blogging company. But now that AOL has purchased TechCrunch, and then invests in CrunchFund, old school media takes another look and cries foul.

They cry foul for good reason, as in the past you can quote examples ad infinitum where if the analyst and the investor are on the same side of the Chinese Walls*, you get very biassed advice ( Dot Com coverage anyone?) and over time, this destroys reputations and businesses. That is one sort of risk for an independent fast and loose blog to take (TechCrunch), but not for a slow and tightly managed wannabee major media (aka sue-able) empire (AOL/Hugffington/etc). As Stowe points out though, this brouhaha is all the product of the Machiavellian cocktail of greed, power...and fear of missing out on the Bubbletime.

it wasn’t journalists that created Arrington, but the tech scene: a tight-knit, self-absorbed community of investors, entrepreneurs, and wannabes, all desperate for ink, share-of-mind, and a chance for the brass ring. So many hanging on every word printed in TechCrunch, trying to get written up, hoping for a leg up in the steeplechase that is the central animating goal of the tech scene.

Maybe the deep libertarianism of the West Coast tech scene is a factor here, also. The ideology that the elite should be allowed to do whatever, and that there is no need for regulation or lines.

So - some predictions from the lessons of TechCrunch - the New Economics clearly are the future, but the Lineless New Ethics may not prove to be quite so stable. Stowe again:

But in the current TechCrunchgate, the lines aren’t about illegality: this is a story about identities, and the communities that create them. An identity conflict, a culture conflict, and one that might end with a truly Shakespearean close, like Titus Andronicus, with nearly all the dramatis personae lying in a heap on the stage.

All the world is a stage, but whether this is just another drama, an unfolding tragedy or a bit of comedy remains to be seen.....

*Update - please note When we talk about Ethics here, we are not talking about Morality - we are talking about What Gets You Flamed/Sued/Fined/Incarcerated.

Something is in the air at TechCrunch:

TechCrunch is on the precipice. As soon as tomorrow, Mike [Arrington] may be thrown out of the company he founded. Or he may not. No one knows. And if he is, he will be replaced by — well, again, no one knows. No one knows much of anything. Certainly no one at TechCrunch. This site is about to change forever and we’re in the total fucking dark. I’ve been able to piece together little bits of information here and there, and it’s not looking good. Hence, this post.

By now, if you read TechCrunch, you likely know about the nuclear situation that has exploded over the past several days. Mike unveiled an investing entity known as the “CrunchFund” with full AOL support — so much support, mind you, that they’re the largest backers of the fund — only to have his legs kicked out from under him due to what can only be described as nonsensical political infighting and really poor communication. To make matters worse, some Journalists (with a big “J” and even bigger senses of entitlement) have proceeded to pile on, despite having no real knowledge — at all — of the way TechCrunch actually works. And now here we are.

The only thing that surprises me is that anyone thinks you can (i) sell to AOL and then (ii) "pivot" from writing about, to investing in, startups without major changes.

It's a Bubbleworld brouhaha, as it means the money flooding into funding flimsy startups is higher than the money going into talking about them. The old Gartner Hype Curve says it all - when a market moves from talking about some new new thing at conferences to actually investing serious money in it, its getting to the top - the "Peak of Unrealistic Expectations" - of the hype curve.

Its business as usual on BubbleWatch, as AOL/TechCrunch's Michael Arrington starts a startup fund:

Mr. Arrington is starting a venture capital fund to invest in the start-ups that TechCrunch covers.

The $20 million CrunchFund is financed by AOL, Mr. Arrington’s employer, and by many of the top firms in venture capital — including Sequoia Capital, Kleiner Perkins Caufield & Byers and Greylock Partners — which Mr. Arrington also covers on TechCrunch.

Nothing like a conflict of interest there......but so far, so predictably bubbly (In fact he's a bit late to the startup fund party, see our Bubble-O-Meter above - but the more the merrier in Bubbletimes)

And yet, there is also this interesting aberration - Analysts are calling Groupon overvalued, the bounders - PE Hub:

In one of the nicer reports to be published about the daily deals company in recent weeks, Benchmark Co. analyst Fred Moran told Reuters that he considers the company’s oft-cited valuation of $25 billion “very high.”

This morning Henry Blodget of Business Insider jumped into the fray, defending Groupon from the many slings and arrows it’s been taking by writing that the company “can make money – but it won’t be easy.”

Well, that's Henry for you, ever the optimist...but it is interesting that a DotCom II darling is actually being called OverValued. Sarah Lacy thinks its because essentially they Werent Invented In the Valley. I think its because they are overvalued.

What will be interesting is to see if this new crop of analysts have a pop at some other overvalued IPO's in waiting......We have a sniff that step 6 is starting, but Step 7 in the Bubble-O-Meter may be delayed a bit!