I believe that the world of tech entrepreneurship is definitely in a bubble. But more than a startup bubble, we're in a coder talent bubble. Take a minute to read 2012 is for buying startups. Companies are getting bought not because they made anything of value or with a revenue model, they're getting bought more and more because the acquirers need more engineers. Have you looked at the list of sponsors for any hackathons lately? Huge companies (Google, Yahoo!, and Facebook come to mind) have sponsored several small hackathons reasonably close to the Philly area in just the past few months. They're not doing it mainly because it's a good thing to do, they're doing it because it's a recruitment tool and they desperately need to find engineers. (But keep doing it! Hackathons are awesome!) And then there's this phenomenon:
I'm a CS major at Stanford University, and I've been asked to co-found or become the CTO of a startup 3 times this week. And that is only counting the phone calls and meetings, emails are another story.
This is a quote on my post yesterday about how non-technical people can get a website built for their startup. I've seen it over and over again. CS majors at Penn are inundated with requests like these. Can you imagine asking some inexperienced programmer with a few algorithms classes under their belt to run a company? That's exactly what's happening. The fact that startups seem to be a vehicle for hiring people is driving up the price artificially high because we can value the company at absurd prices instead of the individuals. As a result the incentive is for engineers to start companies instead of being hired in a traditional fashion because the potential reward is much greater. This in turn drives the price of engineers even higher.
This phenomenon is a result of structural unemployment. Because too few people are trained to do the jobs that are available (read: programming) there are a lot of people unemployed despite there being a lot of job openings. What's interesting about this is that, short-term, programmers are in the business of unemploying people; they accelerate the structural unemployment process by producing tools that make companies more efficient. When the recession hit in 2009, it provided a trigger for companies under stress to lay off a lot of people and adopt new efficient technologies instead, which in turn prompted an even larger push to find programmers. Longer-term these efficiency gains usually end up creating a lot of jobs, though it looks like we haven't hit that point yet.
One possible implication is that if companies weren't so desperate to hire coders, there'd be less of a startup bubble and less unemployment. There could also be a shift in the kinds of startups we see as those less serious about it would be hired through the usual process instead of via acquisition. There are two ways to get to this point: train more coders, and make coders obsolete. I'm not sure what the second case would look like.
Update: Another factor in this problem is that programmers are typically out of the industry by 35. Maybe another solution to the problem is to pay older coders reasonable salaries instead of maintaining this constant churn.