
In Silicon Valley, Investors are Jockeying like it's 1999 - carterac
http://online.wsj.com/article_email/SB10001424052748703806304576233050434554110-lMyQjAxMTAxMDEwODExNDgyWj.html
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pg
"The two men signed a deal with Y Combinator in which they paid $6.5 million
to gain first access to roughly 40 promising entrepreneurs selected by the
elite incubator. "

This is completely false. We didn't sign any deal with Ron and Yuri. They
simply offered 150k apiece to all the startups in the winter 2011 batch.
Anyone else could have done the same thing.

Reporters often get the facts wrong, but this is one of the more extreme
examples I've seen.

~~~
hrasm
Kind of makes me wonder if similar reporting styles played a large part in the
late 90s boom/collapse.

~~~
Andys
Good point: the article's style reeks of artificial scarcity

<http://en.wikipedia.org/wiki/Artificial_scarcity>

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MortenK
Not knowing a whole lot about Silicon valley in particular and even less about
economics, I still get the feeling that the US tech industry is very much in a
bubble.

From the outside, these absolutely soaring valuations of everything from
established players like Facebook, Twitter and LinkedIn, to new start ups
(Color being a recent example), resembles a somewhat illogical and overly
optimistic view of the value of those companies.

Also many new and unproven companies raise amazing amounts of money, for, at
least seen from the outside, downright silly business proposals (share your
credit card expenses, anyone?).

Apart from the valuations, there is the point of founders and early investors
taking huge amounts of money "off the table" in subsequent funding rounds. A
recent example being Groupon, where I think up to 30-40% of the raised capital
went directly to "executive officers, directors or promoters". In my
uninformed opinion, in a "normal" market, very few investors would accept that
money invested for business growth, was used for the purpose of massive
payouts to founders and C level personnel. However in the US, at the moment at
least, it seems very common. Maybe this has to do with the assumed fact, that
if some investors aren't up for those terms, other investors are itching to
jump in.

This gives way to first founders having massive payouts. Then directors, then
investors, then the next round investors etc. This, in my mind, resembles the
"greater fool" theory, which was common behaviour during the recent housing
bubble (buy the house, flip it 6 months later for 20% profit, next owner
repeats).

Finally, there's the "gold rush" or the less flattering "herd" mentality,
where it seems that there are now so many people interested in investing in
tech, that again valuations goes higher and higher. We even have hollywood
actors, investing heavily in mobile app companies.

As mentioned, I am not an expert in economics, bubbles or Silicon valley, so
I'd be interested in hearing from anyone who can question my conclusions, and
add to the discussion.

~~~
colinyoung
I am not an expert either, but I may be able to comment on a few things.

> Also many new and unproven companies raise amazing amounts of money, for, at
> least seen from the outside, downright silly business proposals (share your
> credit card expenses, anyone?).

Judging by the current climate in SV, I can safely say that silly businesses
are not still not really getting funded. Blippy for example was forced to
pivot. Investors are still looking for businesses that are either going to
make lots of money now, or engage lots of people and make lots of money later.
Many people outside SV scoff at the 2nd clause, but with 1B people online and
3B cellphones in the world, and instant distribution channels like the App
Store, it's not so absurd. Just as a general rule, if you see something
seemingly stupid get funded, they probably have something else going for them
-- crazy traction, awesome customers, or past entrepreneurs as founders.

> Apart from the valuations...taking huge amounts of money "off the table" in
> subsequent funding rounds.

It's true that a huge amount of the raised money went to the execs, but that
stock was sold, at the established price, by the "executive officers,
directors or promoters" in question - one could argue, [as Andrew Mason
himself does]([http://www.businessinsider.com/groupon-ceo-andrew-mason-
tell...](http://www.businessinsider.com/groupon-ceo-andrew-mason-tells-us-why-
he-just-sold-stock-to-dst-2010-4)), that it was an intentional way to get
early liquidity. Obviously that price has now gone up; it was their choice to
sell. Founders often argue that raking back is a good thing because it
prevents people from needing to sell perfectly good businesses to get
liquidity. Just playing devil's advocate.

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geuis
A question someone like me has, is how do you get the attention of these
investors? I have a few ideas for products, a couple of which I've done
preliminary coding for on the side. But the problem I have is

a) I have no connections

b) I work full time, so I have very little time other than late nights to work
on the things I'm really interested in. I feel like I'm missing huge
opportunities because I can't work on the things that I find really
interesting because I'm doing someone else's work.

~~~
pg
Joshua Schachter started Delicious on the side while working full time. At a
trading firm no less. It seems like the keys were (a) to work on something
where there was no big initial step to get over-- something that was
interesting to a small number of people almost immediately, and (b) to make
constant incremental progress.

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jdp23
"The momentum is driving a wave of deal envy and trash talking—complete with
power plays, personal feuds and turf wars among Wall Street bankers,
billionaire speculators and venture-capital veterans."

Sounds like a bubble to me. Anybody remember the pets.com sock puppet?

~~~
ojbyrne
So today Apple announced that Macbook Pro sales were up 47% year to year.

[http://www.appleinsider.com/articles/11/04/18/new_macbook_pr...](http://www.appleinsider.com/articles/11/04/18/new_macbook_pros_push_apples_us_sales_up_47_year_over_year_in_march.html)

Having a huge tech company producing hedge-fund like growth numbers is a new
phenomenon (at least since Windows 3.0), and it's carrying over into the
broader tech field. If you're a wealthy investor with the choice of putting
money into some financial vehicle in an increasingly crowded space, or into
something that actually ships product, and still makes huge bank, the choice
is a no-brainer.

Tech is the current momentum play, because all the financial vehicles are in
the tank.

~~~
patr1ck
No they didn't. Apple didn't announce anything of the sort.

You're linking to _a rumors site_ which is citing _speculative analysis._

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palewery
I do think there is a bubble of people hyping startups. Facebook got a stupid
valuation and everyone started reporting that the 1999-2001 bubble was back.
But that was just Goldman Sachs bullshitting everyone. It doesn't mean every
startup has a stupid valuation now.

