Tech stocks in California continue to soar as the race to a billion dollar market cap becomes more achievable.
More angel investors and VCs are placing huge bets on extremely early stage companies to cash out on a 5 year exit plan. With the rising popularity of convertible notes and other means of discounted options to buy, investors now find it easier to step up to the startup roulette table.
California tech companies need to start acting more responsibly in their activities as to not provoke a world-wide tech bubble collapse. They should serve as the benchmark for startups around the world.
Although not illegal, realtors have been using the tactic of straw-buying for years. Simply, it involves using another’s credit and standing to take out a mortgage for a completely separate buyer.
However, things get tricky when property-flippers promise high returns while backend transactions happen without proper due-diligence.
History Repeating Itself
The same thing is happening in Asia. A pool of newly minted millionaires is increasing. Meanwhile, startups are attracting heavy-hitting advisory boards. The intention is to leverage their name and reputation to get investment in the company.
Does that sound familiar? Gripping much of East Asia, the 1997 Asian Financial Crisis left the world at the edge of their seats hoping it wouldn’t spread globally, causing a worldwide meltdown.
Nowadays, the continent boasts a majority of the world’s manufacturing and working population. Because of this, Asia simply cannot afford to have any of its industries burst. The world relies on Asia for nearly everything.
From a recent CNBC article, reporter Michelle Loh writes:
“The flood of liquidity puts the region on pace for 45% year-on-year growth”, according to a report by KPMG and venture capital tracker CB Insights. “The region still lags behind the United States’ $19 billion worth of funding. But Asia now attracts slightly over a third of the venture funding available globally,” the report said.
You read that correctly. Asia attracts nearly a third of venture funding available globally!
Meanwhile, a greater number of startups in Asia are failing. The majority of startups will inevitably fail – that’s part of the ecosystem. However, the collapse of big players like Thailand’s Ensogo, along with a trend of more failing startups in general, is worrying.
Is There an Asia Startup Bubble? Will it Pop?
No one can say with certainty whether a startup bubble exists in Asia. It’s possible that problems are being solved in ways which only make sense in Asia. Western firms might not be able to judge whether startup valuations in the region are accurate.
That aside, how can investors and startups avoid a potential bubble? They need to be more patient.
Edith Yeung, Partner at 500 Mobile Collective, sounds a note of caution. She says that tech startups might be a “hip thing” at the moment, but investors in Asia must be schooled in the art of patient capital.
While “there’s definitely tonnes of talent” in Asia, most start-ups will fail. Investors shouldn’t put their money down unless they’re prepared to wait it out, she said.
“It’s highly risky. If you want to get to a point where there’s a good exit, it takes at least 5-10 years.”
Skip the Next Western Recession
Learn the best places to invest – and where to avoid – by downloading our free Investment Cheat Sheet.
- Will the Asia Startup Bubble Burst? California Has Clues - July 26, 2015