I was talking with my friend Jim D’Amico (@jamesldamico), founder of oncampus.com, the other day about the oft-mentioned tech bubble.  Jim and I were both questioning whether or not there is a bubble.  A lot of angel investors and VCs are claiming one as investment terms swing in favor of entrepreneurs.

With any surge in the availability of investment capital there will inevitably be winners and losers. Entrepreneurs should be careful not to inflate their valuations too early in their growth cycle.  It will likely come back to bite them even if they find early investors willing to pay at a high valuation.  It is unlikely they’ll be able to grow (revenue) as quickly as their valuations suggest and could make it difficult to raise subsequent rounds of capital.

It seems to me there is a big difference between the high flying companies from the last tech bubble and today.  The high fliers today like LinkedIn and Demand Media have hundreds of millions of dollars of revenue each year; facebook and Groupon generate billions!  Jim suggested that there is a lot of revenue that has yet to be unleashed as consumers begin relinquishing small monthly payments for web services they value.  I agree with Jim.  We’re already seeing this in the B2B SaaS market as dozens of startups are replacing incumbent services for a fraction of the cost.

It also seems counter intuitive to me to have a runaway bubble in a down economy.  Imagine the frenzy to some of these new startups if the economy were doing better!  There are probably some runaway valuation but there aren’t hundreds of millions of dollars investing in sock puppets.   We may very well be in a bubble but I don’t think it is anywhere near the levels we saw a decade ago.

What do you think?  Bubble or not?