The founders of Boo.com, the sports fashion website that became one of the most high-profile casualties of late 1990s dotcom excess, and Bebo, the social network, have warned of a new bubble in internet investments.
Ernst Malmsten, the Swedish entrepreneur who launched Boo in 1999, said valuations being placed on some technology groups at the moment were “crazy” and “fuelled by greed”.
While many of the new generation of online businesses were profitable and generating strong revenues, there would inevitably be winners and losers in the race to find the next big success, he said. Investors were assuming too much loyalty from website customers, he added.
Bebo was sold to AOL for $850m in 2008, but sold again by AOL to private investors last year for an undisclosed sum reported to be less than $10m. Michael Birch, the British co-founder of Bebo, also told the Financial Times that internet valuations – particularly in the US – were getting “a bit silly”.
Privately run US companies such as Facebook, the social networking site, and Groupon, the discount site, have attracted sizeable investments in recent months. But the multibillion dollar valuations being placed on such sites have triggered debate about whether the market for internet companies is becoming too frothy.
However, Mr Malmsten, who is now chief executive of the London-based Lara Bohinc luxury accessories group, said there were clear differences between the internet environment now and a decade ago, adding that certain markets had enormous growth potential.
“It’s very easy for someone to come up with a brilliant idea now,” said Mr Malmsten. “In a couple of months you can have hundreds of millions of users.”
Mr Malmsten will this week launch a website for Lara Bohinc, his first new e-commerce venture since Boo collapsed in 2000.
Lara Bohinc was founded by the designer of the same name in 1997 and sells jewellery, handbags and shoes. Mr Malmsten and Ms Bohinc have not taken any venture capital money.
The cost of building and running such a site has fallen sharply in the past few years. Lara Bohinc, which employs 13 people, spent just £10,000 building its website. By contrast, Boo employed about 400 people and spent £30m constructing its site, burning through $135m of investors’ cash only to collapse a year after its launch.
Mr Birch also remains an active technology entrepreneur, recently launching Jolitics, a political social network. But he echoed Mr Malmsten’s concerns.
“There is a bit of a mini bubble in Silicon Valley,” he said. “The terms of angel investing have become a bit crazy. I think it’s been led by the Facebook valuation.”
Although he added it was “perfectly possible Facebook will be as big as Google,” Mr Birch said that he had stopped investing in early-stage technology groups because smaller companies basing their valuations on Facebook is “a bit silly”.
“The risk of an angel company is the same as it ever was,” he said. “The chances of it becoming one of the batch of the billion-dollar companies is as small as it ever was. And there are more start-ups than there ever were.”