Tuesday Grok: It may not be a bubble, but it's a stretch

Last big thing. Next big thing. That shrinking feeling.

The universe is expanding. You wouldn’t know it though, as it’s hard to see a bubble expanding from the inside out. But it's an interesting phenomenon, at least right up until the moment when the membrane breaks. In this regard, tech bubbles are like other bubbles — * they are hard to pick, easy to prick, and some people with big brains still dispute its happening at all.

But if you can recognise the portents and read the chicken gizzards, there are clear hints. Here are three: Pinterest, Quora and Groupon.

Well, that was quick

Seems like just moments ago that Pinterest was heralded as the next big thing. It surged after just a few short months into third position amongst social networking websites, behind only Twitter and Facebook.

But now we learn from <i>Techcrunch</i> that its growth may be slowing. Don't worry though. The good news is that this is self-inflicted.

Say what?

The Techcrunch article makes a pretty convincing case with all manner of metrics that Pinterest has come off the boil. However, they conclude that a shabby re-design, and problems with a new app which locked out a slab of their Facebook users, seems to be to blame.

If that analysis is right, it's a short-term problem and next month's data should show a return to growth. If not, well there goes a billion dollar valuation.

The next, Next. Big. Thing.

So now that we have successfully consigned Pinterest to yesterday’s news bin, it's time to crank up the noise around the next Silicon Valley gazillionaire factory — Quora.

Business Insider described Quora as, “a question and answer site where influencers leave intelligent answers that can be voted up or down by readers.”

The site was founded by Facebook’s first CTO Adam d’Angelo who is also putting $20 million of his own money into the biz.

BI carries an interview with d’Angelo here.

For its part, BI, in an article republished by the San Francisco Chronicle , asked (somewhat tongue in cheek) whether Quora should be a billion dollar company. “But lately, $1 billion has become the magic number. The billion-dollar startup club has grown to include Evernote and Instagram, and we've heard VCs are sending Pinterest unsolicited term sheets with valuations north of $1 billion.”

For its part, BI concludes the current valuation is about right.”Despite all the startup hype, Quora's valuation is right where it should be, if not on the high side. Quora has only raised a, $11 million Series a round, and that was two years ago at an $86 million valuation. At the moment, Quora doesn't need a ton of outside capital either.”

The last Next. Big. Thing.

Groupon’s shares continue their inexorable decline towards single digits. Dedicated followers of fashion will recall that the group buying site, listed at $20 bucks on the day it floated last year, popped to over $30 and then got caught by the inevitable gravity of reality.

It traded today below $11.50 (even that was a slight improvement), but the trend is not its friend.

Also, those retail investors who got sucker punched by the spruiking of the Big Money houses like Goldman Sachs and JP Morgan can at least reconcile themselves that just about everyone’s a loser, including the late stage investors. They are still up 45 per cent on the stakes they acquired in December 2010 and January 2011, according to <i>Techcrunch</i>, but the tech blog said that the number to watch is $7.90.

“That’s effectively what several top-tier Silicon Valley venture firms including Kleiner Perkins, Greylock and Andreessen Horowitz paid per share when they invested $946 million in Groupon between December 2010 and January 2011. At that point, they bought Series G Preferred Shares for $31.59 each.”

So anything below that, and they are under water. There are two key dates to watch, according to Techcrunch. The first is May 14, when the company next reports quarterly earnings. Missing expectations on this would be very bad. A big bad negative surprise, like the one the company hoisted on the market recently would be calamitous and would pretty much remove any floor under the price. Given scrutiny on the company, neither event is likely, and the later much less so, unless the board has a professional death wish.

And the second date is June 1st when everyone involved in this shabby exercise is finally allowed to sell their shares. Don't get caught between them and the exit sign. It won't be pretty.

*We may be in a bubble, or maybe not. Either way it's not as bad as dot.com 1.0 which took out the IT industry as well as the dotcoms. Back then, the big IT vendors bought equity in hot stocks with their equipment instead of cash. When the dotcommers went bust, all that gear ended up on eBay at knock down prices. Everybody hurt. Except eBay... they laughed all the way to the bank. Big IT has done some dumb things over the years, but it hasn't done the same dumb thing twice.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.

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