

A Silicon Bubble Shows Signs Of Reinflating - asnyder
http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-shows-signs-of-reinflating/

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SriniK
This sums up for most of the article.

 _Those three companies have about $90 billion in cash on their books.
McKinsey & Company calculates that the largest software and hardware companies
have enough excess cash on hand to buy nearly all of the tech industry’s
medium-sized companies._

As long as there is this kinda cash sitting with companies wanting to buy,
there will be companies made. Cash is cheap nowadays and there are lot of
people/companies willing to bet.

mobile tech, wireless access, cloud/aws, linux maturity, etc.. - everything
culminated to make whole tech companies so disruptive, no other field is ripe
with products or speed of innovation.

~~~
dualogy
"Cash is cheap nowadays" -- in what currency? ;)

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spitfire
Basis points. Cash is dirt cheap right now, and the US fed has said they'll
keep it that way for a few years.

Wait, wasn't that the storyline for another recent story....

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csomar
What do you mean by cheap? Inflation? I doesn't seem to be that cheap for me.

~~~
Benjo
GP is probably referring to low interest rates and the general availability of
investment dollars.

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yosho
"while investors reportedly signed a check for close to $30 million for a
niche blogging site called Tumblr"

Last I checked, Tumblr was on the 100 most visited websites list. That's
pretty good for a "niche" blogging site.

This story is pure sensationalism, most of the companies listed have proven
business models or at least substantial traction.

~~~
akozak
I agree:

"The chief evidence, according to industry experts and analysts, is the way
venture capitalists and established companies are clamoring to give money to
young companies, including those with only a shred of an idea."

This just seems inaccurate. All of the companies mentioned in the article (and
most of the companies that seem to get funding) at least have a functioning
product or service. You still have to actually build something.

~~~
nir
Having a functioning product isn't that relevant.

Take Yammer - it's not difficult to build. People made identi.ca in their
spare time, for free. If Yammer turns out to have a real market, competitors
in the intranet space can easily add a similar product to their line. How is a
$40m VC investment justified? My guess is that the investors are betting on
selling Yammer to a bigger company. This is what's known as "find a rich
sucker" (or "AOL") business model, and is typical of a bubble.

To determine if it's a bubble, you don't look at the companies or products.
You look at the investors. If they are loose with their money, that's when you
know.

~~~
kragen
A minor factual correction: identi.ca is a product of StatusNet, Inc., which
has at least three employees at the moment. Evan did not build it "in his
spare time". However, it's true that you could take the StatusNet code and use
it to build a product like Yammer "in your spare time" if you were a
"competitor in the intranet space".

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chime
I have no authority to argue whether there is a bubble or not so I'll let that
matter aside. What I am glad about the tech in 2010 (vs 2000) is that the
sites which are currently being hyped up actually work and are very useful. My
wife uses Groupon and I have a few Tumblr blogs. My dad uses Facebook and my
mom plays Farmville for hours.

All of these companies have scaled their architecture to support millions of
daily users. They have managed to reach their target market and many of them
are already profitable. The developers behind these sites aren't folks who
picked up a "Dummies Guide to HTML5" on a weekend. Many of the interesting
articles posted on HN are by the founders and/or people running the operations
at these companies (e.g. <http://www.marco.org>).

~~~
_delirium
Many of the sites and businesses in the first bubble did at least _work_ ; I
don't think that was the main problem. They just weren't able to make money.
To pick two notorious examples: WebVan really did deliver groceries, and the
customer experience was fairly popular; and GeoCities was a reasonably well
run site that fostered a lot of user-generated content. But WebVan couldn't
pay for its operations and scaled up way too fast, and GeoCities, while it
would've been a good idea at a lower valuation, wasn't worth the $3.5 billion
that Yahoo paid for it.

~~~
bh23ha
Ah yes, but with better management both could still be in business.

Or in other words, Starbucks could also have been mismanaged. And
<http://www.peapod.com/> is still in businesses.

As others in this thread have pointed out, the key distinction between bubble
1.0 and 2.0 is complete nonsense vs. real value.

Most likely currently hugely overvalued value, but still real value.

After bubble 1.0 burst, it hurt the very concept of business on the internet
badly.

When 2.0 bursts, a very few companies will close shop, the rest will simply be
worth a lot less and lay off people but will return to operating profitably as
before.

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FluidDjango
Who _are_ these reporters. Where is the _analysis_?

The paint with a broad brush trends at which they "tsk, tsk" without
presenting the data, discussing what criteria constitute evidence of
"bubbling", or demostrating overvaluation.

Consider:

"The chief evidence, according to industry experts and analysts, is the way
venture capitalists and established companies are clamoring to give money to
young companies, including those with only a shred of an idea. "

Which "experts and analysts"? ?All? of them? Do none dissent? How much of "an
idea" is "as shred of an idea." Do they mean "only a shred of a business
plan?"

I believe this meets the criterion for "a bubble of journalism."

Look out for Rupert: it seems the NYT has surrendereed.

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joshu
Of course it's a bubble. There's an article in the NYTimes asking if its a
bubble.

~~~
DaniFong
Ever thought of investing in greentech? The early stage ecosystem there is
much less developed -- there are simply fewer investors participating. I think
what's limiting them is mainly non-essential: a combination of forbidding
myths about capital intensity + regulations + time to market, plus the science
being trickier. Probably a lack of angels who became wealthy from the space is
an issue too, but there is no shortage of angels who were formerly physicists,
aerospace engineers, chemists, biologists, etc.

There are massive opportunities, and the capital cost & lead time, at least in
the earliest stages, are not nearly so bad as people assume. Working on design
and theory costs roughly as much as a web startup -- founder's living
expenses, some time at a machine shop, a few sourced parts.

At least that's how it was for us.

I think that the valuations, if you look from afar, are can seem pretty
staggering as well, but I think that burn rates can be made low with the right
approach.

~~~
robg
I'm finding the same exact reaction in medtech. Same foreboding myths, same
massive opportunities, and same chance to build lean operations. We're
grinding along but I'm surprised that tractable obstacles look scary to
otherwise savvy investors.

Have you looked into government grants? It's a very different process and set
of expectations than a pitch deck, but the capital is non-dilutionary and
there is a bunch of stimulus money sloshing around. Obama seems to recognize
that the future US economy will be in biotech and greentech.

~~~
bh23ha
Really? I've always found the number one barrier in medtech to be fact that
the feds won't let you unleash cutting edge new medtech on humanity without a
crushing time and money penalty to prove it is safe and worth it.

Just so people don't miss interpret what I'm saying: I do think we should try
to prove medtech is safe and does something. But I think the _quantity_ of
proof we require slows down innovation tremendously. And the penalty we pay
for bringing things YEARS to market later then we could have is human lives.

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tybris
What people fail to recognize is that inside the .com bubble was a solid pot
of gold. Internet companies did change the world and became exceptionally
profitable. The facts just got lost in the hysteria.

Is Groupon a bubble? Sure. Is there a pot of gold inside of it? You bet.

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DanielBMarkham
It's worth noting that _if_ there is a bubble, it is a fundamentally different
bubble than we had in 2000.

In 2000, we had a lot of companies pre-profit having an IPO. It got so crazy
that companies got into the IPO-business, you could drop anything on the
public markets (it seemed) and watch the price skyrocket.

This is all private investing, not public offers. And it's a big difference
between what a bunch of rich guys do with their extra money than what grandma
does with her retirement fund. It's also different from the housing bubble,
which involved huge swaths of public money and touched anybody with a
mortgage. If you're a big believer in free markets (I am) then this is exactly
what rich guys are supposed to be doing -- gambling their money on a horde of
young bucks with crazy ideas to change the world (or little parts of it). I'd
also point out that startups today are much sounder financially than they were
back in 2000. So while it may be a bubble, it's a bubble we can easily live
with. We could use more bubbling, actually.

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mhartl
Especially given the growing power of angel investors, you could easily spin
this story as the erosion of the VC cartel. It's entirely possible that
previous startup valuations were too low, with the recent increases simply
being a market correction.

