Another digital gold rush
Internet companies are booming again. Does that mean it is time to buy or to sell?
May 12th 2011 | BEIJING AND SAN FRANCISCO | from the print edition
PIER 38 is a vast, hangar-like structure, perched on San Francisco’s waterfront. Once a place where Chinese immigrants landed with picks and shovels, ready to build railways during California’s Gold Rush, the pier is now home to a host of entrepreneurs with smartphones and computers engaged in a race for internet riches. From their open-plan offices, the young people running start-ups with fashionably odd names such as NoiseToys, Adility and Trazzler can gaze at the fancy yachts moored nearby when they aren’t furiously tapping out lines of code.
38号坞棚（PIER 38）是坐落在旧金山滨海的一幢巨大棚库状结构的建筑。在加利福尼亚淘金潮时期，这里曾是准备修建铁路的中国移入民带着铁锹铁铲的登陆地，而这些坞棚如今则是一群带着智能电话和电脑埋头于互联网财富竞赛的实业家们的老巢，这些年轻人运营着有着像NoiseToys， Adility 和Trazzler这样名字新潮而古怪的新兴企业，在他们激情四溢的打出一行行的代码之外的时间里，可以凝望到（眺望）停泊在附近的豪华游艇。
“The speed of innovation is unlike anything we’ve seen before,” says Ryan Spoon, who runs Dogpatch Labs, an arm of a venture-capital firm that rents space to young companies at Pier 38. Like many other entrepreneurs, the tenants would love to follow firms such as Facebook and Zynga, a maker of hugely popular online games including Farmville, that have been thrust into the internet limelight in the space of a few short years.
“创新的速度与我们先前的所见迥然不同”，在38号坞棚（Pier 38）运行着一家风险资本公司分支，向年轻公司出租空间的Dogpatch Labs 的Ryan Spoon说。和其他许多企业一样，这些天才乐意于追从像脸书（Facebook）和Zynga这样的公司。 Zynga公司是一个包括Farmvile游戏在内的极为风行的在线游戏制造商，它在短短的数年之间里，已经冲进了互联网的聚光灯之下。
Some of the most prominent start-ups are preparing for stockmarket listings or are being bought by big firms with deep pockets. On May 9th LinkedIn, a social network for professionals that took in revenue of $243m last year, set the terms of its imminent initial public offering (IPO) on the New York Stock Exchange (NYSE), which value it at up to $3.3 billion. The next day Microsoft said it was buying Skype, an internet calling and video service, for $8.5 billion (see article).
某些最为卓越的新兴企业都在准备上市，或是被大型公司以丰厚的价格收购。在5月9日，面向专业人员的，去年收入达$2.43亿美元的社交网络LinkedIn，为其即将在纽约股票交易所（NYSE，纽交所）首次公开募股（initial public offering (IPO)）作出了规划，其估值将高达$33亿美元。而就在次日，微软（Microsoft）说将以$85亿美元收购电话和视频服务互联网公司Skype。
Other firms such as Groupon, which provides online coupons to its subscribers, are likely to go public soon. The return of big internet IPOs, rarities since a bubble in telecoms and internet stocks burst in 2000, and the resurgence of large mergers and acquisitions among technology firms is dividing opinion in the industry. Some veterans see a new bubble forming in the valuations of start-ups and a handful of more mature firms such as Twitter, which is still hunting for a satisfactory business model five years after the first tweet. More sanguine voices retort that many young companies have exciting prospects and that there are plenty of corporate buyers, such as Microsoft, with the money and confidence to snap up older internet firms still in private hands.
Technology, finance and China
Yet both sides agree that the internet world is being transformed by a number of powerful forces, three of which stand out. First, technological progress has made it much simpler and cheaper to try out myriad bright ideas for online businesses. Second, a new breed of rich investors has been keen to back those ideas. And, third, this boom is much more global than the last one; Chinese internet firms are causing as much excitement as American ones.
Start with technology. Moore’s law, which holds that the number of transistors that can be put on a single computer chip doubles roughly every 18 months, has continued to work its magic, leading to the proliferation of ever more capable and affordable consumer devices. Some of today’s tablet computers and smartphones are more powerful than personal computers were a decade ago. IDC, a research firm, estimates that around 450m smartphones will be shipped worldwide this year, up from 303m in 2010.
Moore’s law also underpins the growth of “cloud” services, such as Apple’s iTunes music store, which can be reached from almost any device, almost anywhere. Such services are hosted in data centres, the factories of the cloud, which are crammed with hundreds of thousands of servers, whose price has plunged as their processing power has soared. Everything is connected ever faster, with ever fewer wires.
These technological trends have given rise to new “platforms”—computing bases on which other companies can build services. Examples include operating systems for smartphones and social networks such as Facebook and LinkedIn. Some of them are used by hundreds of millions of people. And the platforms are generating oceans of data from smartphones, sensors and other devices.
These platforms are vast spaces of digital opportunity. Perhaps the most striking example of the innovation they have sparked is the outpouring of downloadable software applications, or “apps”, for smartphones and computers. Apple’s App Store, a mere three years old, offers more than 300,000 of them. Users of Facebook are installing them at a rate of 20m a day. Services such as Skype have also benefited from the spread of smart devices and lightning-fast connectivity.
Some excited people have likened this technological upheaval to the Cambrian explosion 500m years ago, when evolution on Earth speeded up in part because the cell had been perfected and standardised. They may be exaggerating. Even so, creating a web firm has become much easier. By tapping into cheap cloud-computing capacity and by using platforms to reach millions of potential customers, a company can be up and running for thousands of dollars rather than the millions needed in the 1990s.
Thanks to the boom’s second driving force, finance, these companies have no shortage of eager backers. Although too small to interest many venture-capital firms, they are being fought over by wealthy individual investors, or “angels” in the venture industry’s jargon. Many of these financiers made their fortunes during the 1990s bubble and are eager to put their know-how and cash behind today’s tiny companies.
Some “super angels”, such as Aydin Senkut, a former Google employee who runs Felicis Ventures, and Mike Maples, a software entrepreneur who oversees a firm called Floodgate, are occasionally making bets comparable to those of conventional venture funds, which gather and invest money from a wide range of institutional investors. Individual investments of up to $1m are not uncommon. Sometimes angels are clubbing together to provide young firms with even larger sums.
有些“超级天使”，他们偶尔作出与从一些列宽阔的机构投资者进行归集和投资的传统风险基金相匹敌赌注。比如，作为前谷歌雇员，运营Felicis Ventures和Mike Maples这2家公司的软件实业家Aydin Senkut，他就看中一家名为Floodgate的公司。个人投资者上个$100万美元也不是个稀罕事。有时候天使们抱作一团，从而为年轻公司提供更大总额的投资。
Their cumulative impact is staggering. According to the Centre for Venture Research at the University of New Hampshire, angel investors in America pumped about $20 billion into young firms last year, up from $17.6 billion in 2009. That is not far off the $22 billion that America’s National Venture Capital Association says its members invested in 2010. Much of the angels’ money has gone to consumer-internet firms and makers of software apps.
这些天使们总合后的冲击力令人吃惊。据新汉末谢尔大学（University of New Hampshire）的风险研究中心（Centre for Venture Research），去年，天使投资者向年轻公司的注资，从2009年的$176亿上升到了约$200亿美元。比起美国风险资本联合会（America’s National Venture Capital Association）所称的，其成员在2010年投资的$220亿美元，这与之相去不远。天使投资中更多的资金流入了消费者—互联网公司和应用软件制作商。
The financing of more mature tech start-ups has also changed. Elite venture-capital firms such as Andreessen Horowitz and Kleiner Perkins Caufield & Byers have raised billions of dollars in new funds in the past year or so. Some of this money has been pumped into “late-stage” investments (eg, in Twitter and Skype), allowing companies to remain private and independent for longer than used to be the norm.
对更为成熟的科技新兴企业的进行的金融行为已经改变。在去年前后的时刻，像Andreessen Horowitz和Kleiner Perkins Caufield & Byers这样的Elite风险—资本公司，从新基金上募集到数十亿美元。这些资金有一部分被注入到“最终阶段”投资（例如，推特（Twitter）和Skype），比起以前被视作是普遍的，允许公司在更长的时间里保持更多的私有化和独立性。
Venture firms are not the only ones with internet companies in their sights. Some would argue that it was DST, a Russian holding company now renamed Mail.ru, and a related investment fund, DST Global, that set off the boom. In 2009, when most investors in America were sitting on their hands, both poured hundreds of millions of dollars into fast-growing prospects there such as Facebook and Groupon. Those investments seem likely to pay off handsomely.
American hedge funds, private-equity firms and even some mutual funds have followed, falling over one another in pursuit of the shares of popular internet companies. Investment banks including Goldman Sachs and JPMorgan Chase have also set up funds to help rich clients buy stakes.
美国的对冲基金、私人股权公司，甚至是相互基金随后都纷纷而来，一个接一个的落入对流行互联网公司股票的追逐中。包括高盛（Goldman Sachs）和JP摩根大通（JPMorgan Chase）这样的投资银行也都为富有的客户设立基金，用以购买股票。
Their task has been made easier by the advent of secondary markets in America, such as SharesPost and SecondMarket, that allow professional investors to trade the equity of private companies more efficiently. They have also made it simpler for employees and angel investors to offload some shares—and have enabled the world at large to observe a remarkable rise in valuations (see chart 1).
American consumer-internet companies have not been the only beneficiaries of this flood of cash. The boom’s third driving force is the rapid globalisation of the industry. Europe, which has at long last developed an entrepreneurial ecosystem worthy of the name, is home to several impressive firms. These include Spotify, an Anglo-Swedish music-streaming service with more than 10m registered users, and Vente Privée, a French clothing discounter with annual revenue of some $1 billion.
美国的消费—互联网公司并非这一波现金流的唯一受益人。这一轮勃兴的第三大驱动力就是快速的工业全球化。长久以来，欧洲名如其实的延续了其已经发展出来的企事业生态系统，是那些服务最让人难忘的公司的老家。这包括盎格鲁—瑞士的一家音乐流媒体服务Spotify公司，其注册用户超过1000万；而法国服装折扣店Vente Privée每年的收入约$1 0亿美元。
Much more striking, however, is that the latest round of euphoria involves emerging markets that were mere spectators during the last one, above all China. The country boasts not only the world’s biggest online population, but also its fastest-growing. The number of internet users there will rise from 457m last year to more than 700m in 2015, according to the Boston Consulting Group (BCG). And the Chinese are no longer mostly playing games, but are diving into lots of other online activities, notably shopping. Between 2010 and 2015, predicts BCG, China’s e-commerce market will more than quadruple, from $71 billion to $305 billion—which could make it the world’s largest.
更为让人震动的是最近这一轮的幸福也捎带上了上一轮里还只是个看客，作为新兴市场的中国。中国以其有着世上最为庞大的在线人口，和最为快速的增长而夸耀世间。据波士顿咨询集团（Boston Consulting Group (BCG)），其互联网用户将从去年的4.75亿增加到2015的超过7亿。而且中国人（上网）不再主要是玩游戏，而是冲进了其他的各种在线活动上——最为瞩目的就是（网上）购物。波士顿咨询集团（Boston Consulting Group (BCG)）预见，中国电子商务市场在2010到2015年间将翻上四番，从$71 亿增长到$305亿美元——成为世界最大电子商务市场。
Such forecasts have stimulated plenty of venture capital, both foreign and domestic. Albeit with a dip in 2009, the amount raised by Chinese venture funds has grown sharply, rising from nearly $4 billion in 2006 to more than $11 billion in 2010 according to Zero2IPO, a research firm. The sum invested increased from $1.8 billion to nearly $5.4 billion. Much of this went into internet start-ups.
Investors have also been desperate for shares in Chinese companies listed on American stock exchanges (see table). Since the start of the year the share prices of the biggest of these firms have risen by more than a third, according to iChina Stock, a website. Baidu, China’s largest search engine, has seen its share price climb from about $60 to $150 in the past 12 months, taking its market capitalisation to nearly $50 billion. Tencent, which makes most of its money from online games, is worth about the same. Both are among the world’s top five internet firms by stockmarket value. The ten biggest Chinese companies have a combined worth of $150 billion, not much less than Google’s.
They tend to sparkle on their debuts. When Youku, China’s largest online-video company, listed its shares on December 8th its stock jumped by 161%, the biggest gain by a newcomer to the NYSE for five years. The share price of Dangdang, an online retailer floated on the same day, almost doubled. And on May 4th Renren, a social network, saw its share price rise by 29% on the first day of trading, though it has fallen back almost to where it started.
The experience of Chinese firms in America has encouraged other emerging-market internet companies to consider IPOs there. On the day LinkedIn revealed the terms of its offering, Yandex, a Russian search engine, said it would soon raise $1.1 billion by listing its shares on the tech-heavy NASDAQ stockmarket.
Those who think that talk of a new tech bubble is misleading point out that firms such as LinkedIn and Renren have proven business models and healthy revenues. Many internet firms that went public in the late 1990s could not say the same. Moreover, the price-earnings multiples at which other public companies in the technology sector are trading are nowhere near as frothy as they were before the last bubble burst in 2000. That should limit excesses in valuing private firms.
Bubble in the making?
This has led some venture capitalists to argue that 2011 may be more like 1995 than 1999: if a bubble is inflating, it is a long way from popping. So investors who shun internet firms now may be missing a great chance to mint money. Jeffrey Bussgang of Flybridge Capital Partners, a venture firm, notes that venture funds raised between 1995 and 1997 enjoyed stellar returns.
这招致一些风险资本对2011会更像是1995年而不是1999年的争论：如果泡沫是通胀，对破灭来说，就会有相当长的路要走。因此那些现在就跟互联网公司躲得远远的投资者也许能躲过这样一个烧钱的大厄运。Flybridge Capital Partners 的风险公司Jeffrey Bussgang，以其风险基金在1995年至1997年间的的走高而闻名，就对其一流的回报而心有欢喜。
Others point to signs of bubbliness. For instance, some start-up firms are dangling multi-million-dollar pay packages in order to tempt star programmers from Google, Microsoft and other big companies. They are chasing scarce skills when the broader technology industry is on a roll. The NASDAQ index may be far below the heights of March 2000, but it has bounced back from the global downturn; and the Federal Reserve Bank of San Francisco’s Tech Pulse Index, which measures the vibrancy of America’s tech industry, is near its peak of 11 years ago (see chart 2).
有些人会指向泡沫化的征象。比如，有些新兴企业公司开成数百万美元的综合薪金，为了吸引来自谷歌或者微软等其他大公司的明星程序员。在更宽广的科技产业还只是个模子的时候，他们追求独有技术。纳斯达克（NASDAQ）指数也许距离其在2000年3月的最高位还相距甚远，但它已从全球性的触底中有所反弹；而评估美国科技产业活力的美联储（Federal Reserve Bank）的旧金山科技脉搏指数（San Francisco’s Tech Pulse Index），已经接近过去11年来的顶峰(见图2)。
There are also signs of irrational exuberance among some investors. Color, a photo-sharing and social-networking start-up, has been reportedly valued at around $100m by venture firms, even though it has an untested product in a crowded market. Competition among angel investors has helped drive up valuations of social-media start-ups by more than 50% in the past 12 months. Financiers are sometimes skimping on due diligence in the scramble to win deals. In China, too, the purported worth of young firms has risen breathtakingly fast—to an average of $15m-20m in first-round venture financings, which is expensive even by Silicon Valley’s standards.
The danger in all this is that investors lose sight of the risks to the value of internet companies. These are greatest in China. Competition there is intense and users are fickle. Moreover, Chinese firms must wrestle with thorny regulatory and political issues. The government has yet to shut down a listed web company and firms are usually masters of self-censorship. But any move against them could have broad repercussions for all Chinese internet stocks.
European and American internet start-ups do not face a similar threat. But they are still vulnerable to inflated expectations. “Every bubble is a game of musical chairs,” says Steve Blank, a former serial entrepreneur who teaches at Stanford. The trick is to sell or float companies just before the music stops and the bubble bursts. If some of the hopefuls of Pier 38 can do just that, they may one day be able to afford a yacht or two of their own.