

Silicon Valley Start-Ups Awash in Dollars, Again - ed
http://www.nytimes.com/2007/10/17/business/media/17bubble.html?ex=1350273600&en=459d25192f30dc27&ei=5088&partner=rssnyt&emc=rss

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pg
I have no problem at all paying 8x for $1 of Google's revenue what I pay for
$1 of IBM's. IBM is a consulting firm.

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Goladus
Wierd little comparison happens in that article

    
    
        Yahoo: 38x more employees than Facebook
        Yahoo: 32x more revenue than Facebook (estimate)
        IBM:  8x more revenue than Google
        IBM:  ? more employees than Google
    

IBM has 27x more employees than Google, something like 355,000 worldwide. I'd
say that offers a rational explanation for why Google's stock is worth more.
Google has more room to grow.

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Alex3917
Anecdotally, three people have asked me if they could invest in our startup in
the last six weeks. None of them even understand what we are making.

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dpapathanasiou
Interesting quote by Marc Andreessen at the end:

 _"The upward valuations pressure is the result of decisions being made by
people wearing suits in cities like New York and Boston who would never ever
meet with start-ups"_

Really? Aren't most of the big acquisitions being done by EBay, Yahoo, and
Google?

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danteembermage
I think he's referring more to the flood of investment dollars at high
valuation rather than acquisition at high valuation. The suits are the
managers of Harvard's endowment and the like; their desire for returns creates
a large supply of venture financing which increases the demand for startups to
park the money in, driving up valuations.

That's a separate issue (sort of) from whatever forces are driving the
acquisitions; apparently web startups are in high demand with acquirers and
they getting in bidding wars driving up the price. The (sort of) is that the
high demand for startups creates the large returns the endowment money is
chasing in the first place.

So, fundamentally, I think either 1) startups are creating vast amounts of
(expected) wealth and people just aren't used to seeing mostly expected wealth
divvied up in public or 2) the EBays, Yahoos, and Googles of the world are
acting irrationally.

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nostrademons
The acquisition issue is related in another way: endowment money is also
flooding into the publicly-traded stock market, which drives up the stock
price of these large acquirers. They have an incentive to trade their
overvalued stock for tangible products that increase the value of their
business.

It's a bubble, but it's a bubble where everyone is acting rationally. Pensions
& endowments and other institutional investors have an incentive to purchase
these overvalued securities and ever-inflating prices because the value of
their cash will drop through inflation. Large acquirers have an incentive to
trade their overvalued stock for successful companies under "buy low, sell
high". VCs have an incentive to invest in more startups at higher valuations
because acquisitions are being made at higher valuation, plus they need to put
their investment capital to work. Entrepreneurs have an incentive to found
more startups, to capture this investment- and acquisition-money. The ultimate
cause is the Fed, which is flooding the economy with money and driving the
value of cash down.

BTW, this is how capitalism is _supposed_ to work (except possibly the part
about the Fed). Textbooks recognize 3 factors of production - land, labor, and
capital - and I'd add a fourth, entrepreneurship, responsible for turning
those three into products that satisfy consumer needs. Right now, land is
cheap (relative to farming days), labor is cheap, and capital is cheap. The
limiting regent is the supply of people with good ideas for turning capital
into useful products. In economics, when there's a bottleneck in the value
chain, it pushes the returns for that industry up. That's what's happening
now, with average returns for entrepreneurs being much, much higher than for
the general labor force. As more people found startups, it should equilibrate,
so that the returns for entrepreneurship are only the difference between their
productivity as entrepreneurs and their productivity as employees.

If history is any guide, it'll last until enough wealth gets concentrated in
the entrepreneurial class that the ordinary labor force starts thinking of
itself as oppressed and hopeless. Then it usually ends in Depression, war,
revolution, or some other major event that kills a lot of people.

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samwise
save some for me.

