VC Video Interview with Mark Suster: ICOs … it’s not going to end well

By Jeff Harbach, Kauffman Fellows

In hindsight, the collapse of the late ‘90s dot-com bubble should never have been a surprise.

For years, technology startups had been raising investment capital hand over fist, companies were launching initial public offerings (IPOs) without strong underlying business models and the equity markets were growing exponentially.

The Nasdaq jumped from less than 1,000 to more than 5,000 between 1995 and 2000.

Plenty of investors were making money. Mark Cuban famously sold his radio-over-the-internet company Broadcast.com to Yahoo for $5.7 billion during this period.

But most of the growth was based on hype. It was based on speculative investing and on the hope that at least one of the new internet technologies being developed at the time would turn into the next great American business.

Right now we’re looking down the barrel of something similar that may end up being much worse.

Consider the concept of the “bitcoin millionaire.” Bitcoin is a cryptocurrency, a digital store of value that isn’t tied to any one country or central authority and has been actively traded since at least 2010. It is a virtual currency, and it is appreciating rapidly.

This explosive growth has led to a lot of speculative investing, a lot of interest and a lot of new activity, including the recent surge in initial coin offerings (ICOs), which allow companies to raise money by selling new digital currencies to investors. This has become so heated that there are currently more than 1,100 cryptocurrencies available to investors.

Mark Suster, a Kauffman Fellows mentor and a partner at Upfront Ventures, sees a lot of parallels in this to the dot-com bubble he lived through 20 years ago as the founder of two Web-based software firms.

Before he joined Upfront in 2007 after his two startup exits, Suster led product management at Salesforce.com, where he got to see firsthand how the tech industry picked up the pieces after the dot-com crash. The hype around ICOs is far more dangerous than the IPO craze, he says, because today we’re looking at much more money being invested in even earlier stage ventures with even less oversight.

Jeff Harbach is president and chief executive of Kauffman Fellows. https://www.kauffmanfellows.org/jeff-harbach/. He tweets at @jeffharbach.

Photo of ICO conept courtesy of Chunumunu/iStock/Getty Images