This Is a Sign the Startup Bubble Is Totally Maxed Out: It Resorts to (um, Sexy) Junk Mail to Disrupt

As I was finally cleaning out the junk receptacle that my mailbox has become, I found a thick, nearly black envelope among the wadded-up fliers. It was sent to “Resident” and titled “San Francisco Offers.” Kudos. Whoever was trying to get through to me, made it.

It contained six glossy, multicolored sheets, each for a different company. It must have cost a bundle. I was getting ready to toss the packet when I recognized one of the names: these were startups!

But why would startups that plan to disrupt entire industries, invent new paradigms, take mankind to the next level, and make the world a better place for all … why would they resort to expensive, wasteful, dead-tree, old-school junk mail?

Was it a reluctant admission that this old, low-tech stuff works?

There are now 48 pre-IPO startups valued at over $1 billion. Uber, which is currently getting tarred and feathered even on NPR, is sitting on top of the heap, with a valuation of $18 billion. But there are thousands of smaller startups, and they’re all scrambling for money and attention and love.

Their valuations too have been soaring. In 2014, the median Series A valuation – the first major VC money after friends-and-family rounds and seed money – has hit $19 million, which surpassed even on an inflation-adjusted basis the median Series B valuations 10 years ago, according to Tomasz Tunguz, a partner at VC firm Redpoint Ventures. And Series B valuations now exceed Series C valuations from 10 years ago. Everything has moved up. Big money is gushing in all directions.

Some of these millions are for startups not to develop a better mousetrap that would disrupt, but to buy other startups. So messaging startup Kik Interactive just announced that it had raised an additional $38.3 million, for a total of $70.5 million, and that it would blow some of this money on yet another overvalued messaging startup, Relay.

Much of the remaining money is spent, not on building the newest mousetrap, but on advertising. Facebook is the biggest beneficiary of this VC-funded money flow to the point where Mat Honan at Wired suggested that “if the app bubble pops, Facebook’s money machine could seize up – just as it had happened to magazines a decade before.”

So I look through the glossy sheets of paper from another era. On top, a delivery service called Minibar that delivers wine, spirits, and beer “in 30-60 minutes.” Perfect for those desperate situations when you’re too plastered to make it to the store yourself. The inducement: “$10 off your first delivery.” Its seed round – the angel investors that get you started – wasn’t $100,000 or so, but a whopping $1.8 million, a month ago! They’re already blowing some of this money on glossy flyers.

Then there was on-demand home-cleaning and repair service Handy. It has racked up $45.7 million in four rounds, and some of it was plowed into two acquisitions. Handy is currently in the news, not for inventing the next big thing or disrupting something, being a latecomer in a very crowded industry, but for being already tangled up in a class-action lawsuit over a whole laundry list of alleged labor law violations and other claims. Unperturbed, the coupon promises, “Only $29 for your first 2-hour home cleaning.”

And another delivery service. Food. They sprout like mushrooms. A while ago, Google was partnering with our local Costco for a similar thing. Amazon is dabbling in food delivery. Heck, Safeway has been doing it for years. OK, this one is different…. Blue Apron delivers a recipe and the required ingredients all together. So, two eggs, a pinch of salt…. It received $58 million in three rounds, including $50 million in April!

And another delivery service. This one for your pooch. You choose a dog size and a plan, and you get a BarkBox “of treats and toys” delivered every month. The eponymous company received $21.7 million in four rounds, including $15 million in July.

And another delivery service. Enticement: “Get $20 off $80 on your first order.” Boxed, an “online wholesale club,” received $7.6 million in two rounds, including $6.5 million Series A in May. It’s as if the money-spigot had been opened all the way this year, and no one can figure out how to shut it.

The last sheet shows a very pretty girl dressed in not a lot of clothes, sitting all by herself in the middle of the glossy sheet, looking longingly and with a mysterious smile right at me. There is no text. A girl delivered to my house? They got my attention.

I flip the sheet over. First thing I see is a “$50 credit.” I have to go to Casper.com to claim it. Then I see it, on the left, the word “mattress.” I re-check the front. Sure enough, the white surface the girl is sitting on is a bare mattress.

Casper received $15 million in two rounds, including $13.1 million in August. Money sloshing all over the place this year. None of these companies invented anything that hasn’t been done before. There are no barriers to entry, and anyone can jump right in and offer the exact same thing. None of them are tech companies though they have apps and websites. This is how they’re going to disrupt. With glossy junk mail.

And who put all this together? In tiny print at the bottom of the envelope, there is a URL, mailisback.com. Turns out, this is a nearly information-less website that lists the firm’s eight clients – the six startups in this mailer plus two others. The URL appears to be three months old. It doesn’t say who owns it. But it appears to be another startup, probably flush with money like its eight startup-clients, ready to disrupt, but this time the old-fashioned way, with junk mail made of glossy dead trees.

Hence the meme of startups raising money to blow on advertising, while other startups have formed to take this advertising money off their hands, and the money goes around from one startup to the next, and ad-tech startups offer their services, and much of it ends up at big media companies like Facebook. And when these startups run out of ideas, they buy each other. And all of this at valuations that make otherwise sane people shake their heads uncontrollably. This is what a bubble looks like after it has been inflated to the extreme. It’s a lot of fun – till the money dries up.

There’s a new meme about the markets in a crummy global economy where everything is overvalued. Read…  It’s Official: Party Now, Apocalypse Later

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  7 comments for “This Is a Sign the Startup Bubble Is Totally Maxed Out: It Resorts to (um, Sexy) Junk Mail to Disrupt

  1. Huntly
    Nov 21, 2014 at 4:37 am

    are these types of businesses/startups a sign of people’s laziness? in most states you could go to one store to get everything most of them offer. Or, is it the fact that just to make ends meet people are working so much that they don’t have time to do simple errands?

    • Nov 21, 2014 at 7:54 am

      Not sure if there is enough demand for these delivery services to survive. Handy (home cleaning) is fighting it out will all other home-cleaning and repair services out there. There is plenty of demand for these services, but also lots of competition. So I’m not sure that these startups are a sign that consumer habits have changed. But they’re a sign that there is a lot of VC money out there, and that it’s going to get burned.

  2. Vespa P200E
    Nov 21, 2014 at 9:57 am

    De ja vu Jan 2000…

    Remember eToys craze and lest we forget couple of grocery delivery (I think homegrocer or something) that flamed out like spontaneous combustion? The home grocers even built web of warehouse/distribution centers and fleet of vans, ran out of cash (of course) and liquidated whatever they can salvage.

    There is so much money chased out of bank accounts due to near zero % interest rate and driven to higher yield and of course risk with money handed to VCs who flushed with other people’s money gambling (oops meant to say invest) on yet another start-up by 20-something who never even ran a lemonade stand (which BTW some cities are banning…). Yeah I sense it will not end well.

    History repeats and we learn it so as to rinse and repeat it

  3. Nov 21, 2014 at 2:07 pm

    So your point is the weak business models of these startups is due to the cheap money? If these firms launched with the intent of sucking in a bunch of the sloshing around cash as opposed to actually selling a prodct or sevice a la normal means (competition in the marketplace) then their actual businesses is a moot point. Their business model is not to sell goods but to acquire cash, so seems like a big success based on your article.

    Are there no real companies with real in demand products with real customers with real compitetors with real risks that also benefit from this cheap money?

  4. john tucker
    Nov 21, 2014 at 6:06 pm

    There was an article in Bloomberg yesterday about an oil sands in Utah startup, a penny stock going for around 84 cents. I tagged it but didn’t seriously consider actually buying any of it.
    Today it popped up 39 cents ….nearly 50% ….
    MCWEF, if there are any masochists out there ….

  5. Duderino
    Nov 22, 2014 at 9:22 am

    Excellent article wolf – I have to appreciate your humour in particular.

    As for the bubble pop-I do not see that happening until the Fed normalises the interest rate-even though the valuations are crazy. But yeah, they are creating a situation where raising the interest will make the blow all the more severe, whenever that happens.

  6. Nov 26, 2014 at 12:00 pm

    I sometimes wonder if the bubble will ever pop again. It seems there is no way out of this upside down world that does not involve the 99% refusing to participate. We’re all waiting for a Black Swan but maybe we have to make it.
    The only one of these that seems remotely viable is the Minibar booze delivery (but don’t most grocery delivery services also sell booze?) and oddly it has the least funding…

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