Business, Tech

Gambling, Movies, and Wall Street: The Age of the Tech Startup

Alex Wilhelm posted an interesting article on TechCrunch today, in which he concluded that there appears to be “a negative correlation between celebrity interaction and a startup’s future health”. He cites Path, Wiredoo, Airtime, and Moonfrye as examples of ventures that have fizzled with involvement from celebrities such as Soleil Moon Frye, Ashton Kutcher, Sean Parker, and MC Hammer.

You read that right: MC Hammer, best known for his 1990 hit “U Can’t Touch This”, was behind a startup. More specifically, a tech startup, Wiredoo, which was a search engine with aspirations of competing against Google and Bing. If there were any doubts in your mind that we are living in the age of the startup (or perhaps more accurately, the age of the tech startup), then the image of Hammer agonizing over “deep search” and “relational topics” should erase those permanently.

Maybe MC Hammer was inspired after watching The Social Network or reading the book which the film was based upon, Ben Mezrich’s The Accidental Billionaires. Either way, the movie (which received 8 Academy Award nominations) seemed to signal the arrival of Hollywood glitz into the previously unexplored world of nerds, hoodies, and ramen-fueled marathon coding sessions. But is Hollywood, with its focus on style over substance, the right dance partner for tech companies? As Wilhelm muses in his article, “Are companies with celebrity backing less focused on their fundamentals, or perhaps more focused on how they appear?”

Yet, it’s not only Hollywood that has been enchanted by the wizards of Silicon Valley. Wall Street has been equally compliant in building the hype of the “tech startup”. The prime example in today’s headlines is Snapchat, headed by 23-year-old CEO Evan Spiegel. In the wake of Snapchat allegedly rejecting Facebook’s $3 billion all-cash(!) acquisition offer, news emerged that others have valued the messaging app at $4 billion. This number is shocking when you consider that Instagram was purchased by Facebook last year for $1 billion, or only 25% (or possibly less) of Snapchat’s eventual acquisition price.

It looks like Wall Street isn’t actually located in New York, but rather Las Vegas, because only in the tech industry does a company spurn $3 billion in cash for a product/service with no existing revenue! Of course, you can’t really blame Snapchat for turning the offer down, especially if they think they can get $4 billion (or more) by holding out until 2014. Rather, it might be investors who are the ones confusing investing for gambling, because never before has “potential” traded for higher than “reality” in any other era in modern business history.

Traditionally, companies have tried to answer two key questions: “How can we do or make something better/different than our competitors?” and “How do we make money on it?”. In the age of the tech startup, one query takes precedence over either of these: “IPO or acquisition?” For better or worse, your goal if you run a tech company today is to cash out when your chips are worth the most, or at least when they appear to be worth the most. Thus, while Wilhelm might be right when he says that the slick Hollywood packaging doesn’t necessarily help, it certainly can’t hurt.

So this brings us to today, where our story is about Ashton Kutcher, gambling, and 23-year-old future billionaires. No, this isn’t the next big movie in theaters; this is the marriage of Wall Street and Vegas, with Hollywood presiding. Welcome to the age of the tech startup.


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