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Summary:

Silicon Valley is abuzz once again with “bubble” talk, claiming that the tech industry is ripe for a big fall. But the latest bubble warnings miss the mark. Overall, a healthy amount of the companies that make up the web scene today are built to last.

Bubble

This week’s Economist cover story, “A New Tech Bubble,” has people abuzz once again about how Silicon Valley is ripe for another fall. According to the article, irrational exuberance has gripped tech industry investors, and it’s only a matter of time before the general public is left holding the check, just like they did in 2001.

But the latest bubble warnings seem to be missing the mark. Are some Internet companies over-hyped and over-funded? Absolutely. But let’s not throw the baby out with the bathwater by making generalizations about the entire industry based on a few flashy examples. I’d argue that the silent majority of businesses and investors in Silicon Valley are much more responsible than they get credit for. For every headline-grabbing Webvan 2.0, there is at least one current startup running a real business by providing a real service. Overall, a healthy amount of the companies that make up the web scene today are built to last.

To illustrate my point, I’ve put together a list of five startups that have been on my radar recently for doing business the old-fashioned way — with revenue, profits and no frothiness in sight. This is not meant to be a comprehensive list, but if you can think of any others, chime in in the comments!

Outfit7

This maker of the uber-popular Talking Friends apps is growing, profitable, and has no immediate plans to take on a dime of venture capital. “We raise a round of money from our users every month,” CEO Andrej Nabergoj told me recently. “We’re not focused on raising any other kind of funding right now.” The company does not disclose its annual revenue, but Nabergoj says Outfit7 made $200,000 in just one day this past December, as the popularity of its Talking Santa app reached a peak.

Instapaper

“My goal is to spread that message: Charge for something and make more than you spend,” Instapaper CEO Marco Arment told Ryan Kim in a recent interview. The New York-based startup, which makes the very popular Instapaper app that allows users to save articles to read later, is profitable and entirely self-funded.

Fwix

Last month this geo-location startup rolled out a scalable revenue generation model with the launch of its revenue-sharing API, but CEO Darren Shirazi told me recently that the 2.5-year-old San Francisco-based company had already banked millions of dollars through licensing agreements with big media firms. Shirazi told me he’s determined to keep at least 50 percent of the company in the hands of its founders and employees, so having that income stream allowed Fwix to fend off a number of investment offers with less-than-ideal terms. Fwix closed on its first VC round of $6.75 million in April 2011.

99Designs

From its February 2008 inception to the close of its first venture funding round last month, this graphic design marketplace website achieved multi-million dollar revenues and profitability entirely through bootstrapped operations. CTO Lachlan Donald told me that 99Designs’ humble beginnings “brought focus” to the company.

GitHub

This web-based code repository has been banking self-sustaining revenues from day one with its payment plans. The three-year-old company hasn’t taken on any outside funding, not even from friends and family, CEO Chris Wansrath told me in a recent interview. “Everyone says you can’t make money in developer tools. But I’ve learned to take everything everyone says with a grain of salt,” he said. Solid advice for any entrepreneur.

  1. This article really seemed to miss the point of The Economist article. They mentioned several times in the article how the major difference this time is this is more of an international bubble, and the primary focus is on China (and to a lesser extent, Russia). And a lot of this is happening in the private market and with Chinese companies listing on the US market to avoid Chinese investor scrutiny. (Two of their larger examples were Renren, “China’s Facebook”, and Youku, “China’s YouTube”)

    Besides, this article dismisses the Economist’s use of generalization based on a few examples, and then proceeds to generalize based on a few examples!

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    1. Colleen Taylor Thursday, May 19, 2011

      Hi Niraj,
      Thanks for the feedback! You’re right that the Economist pointed out the international aspect of this bubble, but a large portion of the piece focused on how this bubble is spending more time forming in the US in the private market, as opposed to jumping quickly to IPOs like it did in the late 1990s: “The bubble forming in the private market could be pretty big by the time it floats into the public one.” I decided to focus on that part– privately-held startups that aren’t ridiculously overvalued by venture capital investors.

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  2. As an entrepreneur about to launch another startup, I take comfort from this article’s premise that another tech bubble is not on the horizon. Hope you are right.

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