Recent news of LinkedIn’s increased value to over $3bn has raised alarm bells regarding overvalued tech companies. With the likes of Groupon’s estimated worth of $15bn, there are concerns that we’re in a tech bubble all too familiar to the one a decade ago, whereby investments shoot up from non-tech savvy investors to create over-inflated valuations. Guest blogger Wendy Tan White, founder and CEO of Moonfruit.com, comments.

My view is that firstly I don’t necessarily believe LinkedIn is overvalued. They have products in the pipeline that can crystalise more value from their customer base and increase revenues.

With regards to whether we’re in a tech bubble, well a bubble starts when valuations of a business starts to diverge from the underlying true market trend. This happened in 1999 when crazy valuations were happening for companies with no revenue! It's different this time around as companies have real revenues. Groupon is only 2 years old and is already generating $1bn in revenues.

I think it's too early to confirm if there is a bubble, but there are secondary indicators that give me the impression of the early stages of one. For example, the valuations of companies at the early angel investor stages, the valuations on the secondary markets of Facebook and Twitter, and the planned IPOs of these companies, could all point to the makings of a tech bubble.

This can start to bring in investment from wider non-tech investors, and the start of a bandwagon begins. Once Facebook IPOs are announced ostensibly later next year this will fuel investment by those non-tech savvy investors previously mentioned, who will participate in less successful companies at over-inflated valuations.

People point to the Facebook IPO as being the equivalent of the Netscape float in 1995, and the peak of that bubble didn't happen until the end of 2000. We’ve learnt a lot from this cycle and the market information that wasn’t available last time. I think Facebook’s coming IPO will accelerate the cycle, and potentially bring about a peak of investment in the next 2/3 years.

We experienced the first bubble raising VC investment in 1999, and just scraped through the dotcom crash when many didn’t. This time we have real accelerating revenues and are attracting investment for the right reasons – raising $2.25m series A investment in September 2010, and funding from silicon valley-based 500Startups in March 2011. As such, small and medium businesses are paying for our simple, intuitive, design led website builder in droves.

I'm constantly watching to see what part of the cycle we're in and how that affects Moonfruit’s business. But the first priority will always be to run and accelerate a sustainable business, and think about the market valuation second.

For the original article, please click here