Overfunding kills startups

Financial Times

Meet the new tech bubble, same as the old tech bubble, said Rana Foroohar. The death of Jawbone, the fitness-tracker startup once valued at $3.2 billion, “has become yet another sign” that Silicon Valley still hasn’t learned the lessons of the late-’90s dot-com frenzy. Back then, startups like Pets.com went public at sky-high valuations “even as they were losing hundreds of millions of dollars.” The tech market has matured since then, but even now companies still don’t need profits to lure deep-pocketed investors, especially if they specialize in a buzzy market niche. Jawbone raised an incredible $900 million from top venture capital firms to support its fitness trackers and take on rival Fitbit. But along the way, it became

“too rich and fat for its own good.” The company burned through all its cash and failed to anticipate that features like sleep monitoring and step tracking would simply become smartphone apps. Eager private equity investors, happy to ignore the writing on the wall, “kept the bubble going” by pouring in money at higher and higher valuations. A company with less of an artificially bloated value “might have made a good acquisition target or might have done a successful initial public offering.” Jawbone had no such luck. Across Silicon Valley, overfunding is having the same perverse effect—keeping unpromising startups alive instead of innovative. So they limp along, until, like Jawbone, they sell themselves off “piece by piece.”