Sam Altman, the head of Silicon Valley startup accelerator program Y Combinator, doesn’t think the tech industry is in a valuation bubble.
He does, however, feel startups are burning “frightening” amounts of money every month. Altman detailed his fears in an email he sent to Y Combinator alumni this past weekend, and in a phone conversation with Business Insider Monday morning.
“I still feel, as I’ve said for the past couple of years, that valuations are high, but they seem reasonable for a zero interest-rate environment,” Altman told Business Insider. “But I think there are more companies burning $1 million a month than there were one year or two years ago.”
High startup burn rates are one measure investors have used to determine whether or not tech bubble talk is real. Fred Wilson, an early investor in Twitter and Foursquare, recently admitted that some startups in his portfolio burn a few million dollars per month. “It is more [companies] than I’d like and more than I’m personally comfortable with,” Wilson wrote in September.
Another investor, Marc Andreessen, also wrote in September that “many high burn rate companies will VAPORIZE” as soon as the market turns.
Altman says being aggressive with growth, and spending money to get results, is fine. But when money is spent inefficiently it becomes a problem.
“It’s OK if you want to spend money to be aggressive for growth or speed,” Altman says. “The thing that is not OK is if the plans change or environment changes, you should be able to reach profitability on the money you have. What is OK is to spend money for productivity. What is not OK is just to light money on fire.”
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