From tulips to dotcoms: Booms implode. We should have learned by now that when people predict growth forever and believe the boom is really real, the danger of the crash is highest. The perennial problem, since Isaac Newton lost his fortune in the South Sea bubble, has been how to spot the danger of the bust from inside the boom. Perhaps worse, as we have seen repeatedly in much more recent history, has been the ‘dodgy’ flows of funds as healthy growth becomes a speculative boom, and there is a fundamental chaos in accountability and oversight. That there will be business model fraud, from distortion of the services and goods actually on order to infringing uses of other entities’ secure intellectual property and trade secrets, has become a given. This is not healthy growth; this does harm to valid startups; the investment fallout hits not just wealth and institutions but family, friends, pension savers, and municipal and local charities. There is certain to be not just straight out fraud but crime, from ventures’ misuse of investors’ moneys to use of the boom environment as cover for money laundering, particularly as funds detached from clear beneficial ownership flow in from offshore, and back. Growth is good; booms are inevitable as are their correlated busts; but when government puts its finger on the scales to fuel a boom, it fuels the fire with self-interest; watch out below. Nothing lasts forever, but regrowth from cinders is always slow.
1. TGTBT – Booms are always too good to be true. It has long been a given that when ventures, returns, business models, angels, venture capitalists, and other denizens of the boom ecosystem are TGTBT watch for the catch and look for the trap or the back door that will let you out of the deal. Nonetheless, as boom is about to go bust, even the steadiest become swallowed by self-delusion. “For man is a giddy thing,” as was Shakespeare’s conclusion.
2. Engineer shortage – We always hear this in a modern boom, whether oil, dotcom, renewables, or here. For months there has been a widely reported dearth of engineering skills and engineers, such claimed dearth extending even to Cambridge and the Imperial College; educate more engineers in the future, it is asked. The time factors are what? Why would so much money continue to flow in where there is such a gap? Why would ventures continue to form and perform?
3. ‘Rosy’ revenues – Ah yes, until the bloom is off the rose. The wonder of it all, we see in every boom, is the remarkable robustness of the earnings, out-blooming comparable markets, paralleling other times. Watch your wallet when the proportion of companies with positive and growing revenue numbers is unusually high and even higher when one considers the engineer gap.
4. Declared success as opposed to proof – Beware when the pundits begin counting heads. Declaring success is not the same as meeting the demands of success. Raw numbers as in the number of startups housed or funded or even revenue positive prove nothing without proven technology that is new, useful, functional, and making real markets.
5. History – Booms rush in where angels, venturers, and speculators already tread. We have already seen several time in the last decade how tech, financial, and real estate booms walk, or maybe stalk, in parallel. London’s real property market has been powered by speculators, now heavily from overseas, mixing with the moneys flowing in to power ventures, exits, and startup “lifestyle” choices, but leaving all the valuations vulnerable to losses when things turn down overseas. London as a money center has grown its own reputation for loose oversight of numbers and skewing of values, and a certain blindness to mismarked, counterfeit, and dark market goods getting cleaned up with transfers through shell companies, transshipment, and other means. The problem has become global. It is highly doubtful that the local tech boom would not be ensnared in this as elsewhere.
6. The X-market – The British government has called for far reaching efforts to overcome an exploding problem with pornography, child pornography, including live-streaming pornography. The past several years have seen police seizure of tens of millions of children’s images in England and Wales; British and Spanish authorities cooperated in the arrest of some 50 people wanted for made-to-order videos of child rape and abuse, from infants to tweens, moneys deposited in a British bank and moved to Belarus. Days ago, Marques was nabbed in Ireland on a U.S. arrest warrant connecting him with graphic images of small children being raped and otherwise tortured. He has been widely reported responsible for the largest proportion of child pornography, globally. UK women have been assailed for standing up against the Facebook images and groups endorsing criminal violence against women. In the past days, Tweets have threatened individual women and their daughters with rape and death , from a Member of Parliament and a journalist to the woman who simply campaigned to place Jane Austen on British currency. For years, Silicon Valley and other tech venture hubs have been known pornography profiteers. In the UK, as in the US and across the world, the usual suspects, lawyers and other activists defend child and adult pornography as “free speech” although the child pornography, endorsement of violence, and adult pornography are variously crime, incitement to crime, and images of a dark ecosystem that victimizes children and adults with violence, addiction, and degradation. This dark side of tech is a big business, globally. Given the rosy revenues and the tempo of the tech boom despite the engineer shortage, one might well question what else is running on the ventures’ servers.