
Ask HN: Are we in the middle of yet another tech bubble? - alex_duf
I&#x27;m just gathering opinions, do you think we are in a tech bubble, and why?
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ThomPete
No but we are in an valuation bubble.

Tech is still generally underrated compared to it's importance for society but
there is a whole suite of primarily Silicon Valley funded companies whos
valuation is based on it's investors alternative views of what value is.

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aerovistae
I am begging for downvotes here, but I have to be that guy for a
second...."it's", with an apostrophe, is a contraction of "it is."

You're looking for "its," which is a possessive adjective.

~~~
planckscnst
I think errors like this are usually a muscle-mind error, not a
misunderstanding error. I very frequently type "you're" when what I said in my
head was "your". Sometimes I send/post before I notice the mistake.

~~~
sanderjd
The crazy one I do a lot (and usually notice after I can no longer edit) is
"know" instead of "no", which is definitely a muscle-mind problem; it's not
like I think "know" means "no".

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api
Not overall. There may be a bubble in certain small areas of tech, but there
is nothing happening right now that equals the mania of the late 1990s.

I was there, and nope. Totally different economy and culture. To have a bubble
like that you need optimism, and I have never in my lifetime seen a greater
sense of hopelessness and pessimism and anger. Outside of coastal alpha cities
like SF, NYC, Boston, LA, etc., the mega-recession of 2008 onward did not end.
There is no hope, no opportunity, and everything is rising but wages. I've
spoken to people who were older in the 70s and early 80s and some have
compared it to then, but I have a friend who remembers the 70s well and he
insists this is worse.

We may be in a sort of bubble, but it's not centered on tech or specific to
tech. We are at a time in history where unprecedented amounts of money are
sloshing around at the top and it isn't 'trickling down' much via ordinary
routes like wages. As a result, there is perhaps something like a bubble in
the sorts of assets that kind of wealth imbalance inflates: real estate,
bonds, stocks, and yes perhaps other forms of investments rich people buy like
private equity.

If there's a bubble in angel or VC activity, it's a shadow of that larger
imbalance rather than something centered on tech in particular. There's a
ridiculous amount of money at the top that doesn't know where to go, and some
of that is going to be available to inflate startup valuations among many
other things.

~~~
jacquesm
Shame that comments like these are being downvoted.

~~~
mcdougle
I upvoted it. Why is it getting downvoted, I wonder? Seems like a fairly
rational explanation.

Is it just because of the negative tone? I mean, this post is asking for
opinions, and the commenter simply gave his opinion....

~~~
michaelochurch
This whole anti-"negativity" thing is just an attempt to impose Bay Area
passive-aggressive culture on every participant in the discussion, even though
we "in tech" come from (and ought to come from) all over the world.

It makes me fucking sick that people get downvoted for expressing unpleasant
but completely accurate accounts of what is actually going on.

~~~
carboncopy
I think you're making an enormous intellectual leap from the data you have
(someone with greater than 500 karma clicked a glyph of an inverted pyramid).

api's answer is the most complete response to the question so far.

~~~
S4M
Not really, api's comment is currently one of the last in this thread, which
means that it has a low karma. On the other hand, it is likely that several
people upvoted it - I did, and probably people who complain that it was
downvoted also upvoted it, which means that it got several downvote -
something not attributable to bad luck.

~~~
carboncopy
When I made that comment, there were 3 others in the thread. Next time I'll
put a timestamp to add context (I'm not being sarcastic, I genuinely
recognized the ambiguity)

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snowwrestler
I was going to say no, but the top story on HN right now is a simple web app
for measuring mood, which anyone could have been built in about 10 minutes
using SurveyMonkey or Formstack. So, if that's noteworthy innovation, maybe we
in a bubble.

~~~
d23
So the appearance of a non-funded side-project app has caused you to change
your view of the entire industry in the last 5 minutes?

~~~
snowwrestler
The project is fine, it's more about it being voted to the top of HN.

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mangeletti
The ironic part about bubbles is that, necessarily, +80% of people believe
we're not in a bubble just before it pops. After all, this is the primary
reason for a bubble. This means that asking people if we're in a bubble is
sort of a measure of the inverse.

It is possible that we are just below the top of the 8 (not 7) year cycle (see
my explanation boom / bust cycles @
[https://news.ycombinator.com/item?id=9565624](https://news.ycombinator.com/item?id=9565624)).

~~~
alex_duf
That is a good point

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nuclearghost
I don't personally believe we're in a tech bubble like we saw in the late 90s.
At worst the general public isn't at the same risk as we had with all the .com
IPOs. There's a lot less liquidity which means that angels and VCs would take
a much larger hit.

This presentation from Lou Kerner has some good insights.
[http://www.slideshare.net/loukerner/bubble-
cartoon](http://www.slideshare.net/loukerner/bubble-cartoon)

~~~
001sky
"There's a lot less liquidity"

The entire sequence of events since 2009 has been driven by artificial
liquidity support. While consumers may not have acess to credit, VCs are
overflowing with cash, and so are many other types of high-net worth and
institutional money sources. This creates an odd and un-even playing field,
and I think your comment may simply be revealing the view of one hand on the
elephant rather than an objective assessment.

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thewarrior
Looks like everyone is worried. It's possible that many of us reading this
could lose our jobs if there's a large crash.

Maybe I should start saving up and make a back up plan for life outside tech.
But I have none. Ah well , that's life.

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damoncali
If you think today is anything like the 90's then you weren't there.

~~~
zhte415
90s: 3.5 million shares in Netscape for a few 100 million... although only the
beginning, that is modest compared to today.

As another commentator pointed out... valuation vs price.

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bane
I'd say it's more of a froth. Some areas are depressed (relatively), some are
about right on target, and some are way overvalued.

In a bubble lots of people become sudden "royalty", but in a froth, only a
select few are made into kings.

It's clear that "valuation", as term, is not indicative of the value a company
provides/produces, or the market it serves. It's a kind of shared fantasy.

What we keep seeing is that companies with grossly inflated valuations end up
M&A'd into a more mature company, and the value that company had is corrected
over a couple years to be some fraction of the purchase price.

There's also little longevity for many of these companies. An unmonetized cat
picture sharing app gets "valued" at $billions because it's hit some kind of
faddish meme growth curve, is bought be Yahoo! or whomever, and then turns to
vapor within 6 months. The acquiring companies don't even have enough time to
insert their ad network monetization scheme onto the pages before the curve
turns upside down.

Meanwhile, the founders of the site are sitting on piles of cash, and go on to
angel invest in other bad faddish ideas that have a monetizable life-span of
12 months.

Or other startups form that _require_ as their monetization strategy, for some
non-trivial percentage of all humans on the _planet_ to be using their service
before they can start skimming profit off of operating expenses. They hit 85%
of those metrics, sell or IPO for the GDP of a medium sized European country
and everybody is surprised when they have monetization problems.

The Startup->Invest->Value->Sell cycle is broken in several subtle places and
it's not clear how to fix it other than for investors to just get smarter
and/or have other investment vehicles available to them. Or at least start
asking for startups to "start up" with a good business plan in place, and
carefully evaluate it for nonsense. But this won't happen so long as the cycle
as broken. Uninformed investors, who were trained on what success looks like
from their own ridiculous lark of a company fundamentally don't know what a
real company looks like.

Meanwhile there are other companies with real ideas, making real money, who
are struggling to get valuations at 1xrevenue.

Like anything with money involved, tech startups have become a hit-driven
industry, and over the long-term (10-20 years) this is generally bad for
everybody.

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kra34
We are in a global asset bubble, not specifically a tech bubble. People like
to highlight tech valuations because the general public is familiar with the
companies.

Click Bait Headline: "COMPANY WITH NO PROFIT WORTH $1.5 BILLION, THE END IS
NIGH!"

The valuations are divorced from the future earnings of most of the companies,
but so are real estate prices in many cities around the world. So sure, we're
in a "tech bubble" but its all part of a shared economic fantasy so it
probably doesn't matter.

~~~
brudgers
The perception of the valuations is likewise divorced from the risks
associated with the investment. That $150 million for 10% that made the $1.5
billion valuation comes with a liquidation preference, and if the company
liquidates for $300 million, the first $150 million (50%) goes to that
investor with only 10%. That's not suggesting that 0% return is a success, but
it's a lot better than losing $150 million.

From a VC standpoint, liquidation preference lowers the downside risks and
while the high valuation makes a 100x homerun return less likely, that's not
really the goal of a series D. A potential 10x with a good chance of catching
any downside in the liquidation preference is not a dumb investment.

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supjeff
I wouldn't call it a bubble because bubbles burst all at once. Tech does have
value, and some tech companies are actually creating value and seem to be
worth every penny of their valuation. I'm talking about the Übers and AirBnBs.
I would call it a Gold Rush; everyone thinks if they show up with their
pickaxe, they're gonna strike it rich.

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ja27
Not until I hear some friends and family start talking about investing in tech
startups again.

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chollida1
I'd say we are.

One definition of a bubble that my colleges use is an external force that
artificially props up values, or put another way a force that if it was
removed would see prices crash.

Now consider silicon valley, what happens when a 2001 scenario happens and
venture capital money dries up. Ask your self the question, if there was no vc
money tomorrow would valuations remain the same, probably not.

Now that's not entirely fair as vc money won't just all go away, but then ask
is there more vc money now that before, the answer is yes to to tune of about
5x-10x(estimates differ) more than there was in 1999.

So a more realistic question would be to ask what happens if we removed 5x-10x
the funding that we currently have, would prices go down?

The startup market looks alot like the junk bond market in the Milken days.
Junk bonds are very risky bonds but they can pay out alot and as long as there
is money to roll the debt over into new debt everyone is happy. However, if
the market gets jitters then suddenly you go from a scenario where everyone
can roll their debt to a scenario where almost no one except for hte "best"
junk bonds can get rolled( similar to getting vc in 2001-2004).

ie a bubble doesn't go down gradually, it goes down hard.

Another scary thing for valuations that doesn't get enough air time is the
percentage of gains made when a company is private vs when its public. I saw a
great tweet when Larry Ellison retired that said something to the effect of
final score Oracle shares up 32,000% since it when public. It will be hard for
a facebook to return that kind of return to investors over the next 25 years.

It used to be the case that the public markets got alot more of the stock
gains than they are getting now. This should scare people as its the public
markets that give companies their valuations. If the public markets find that
stocks aren't going to have the 20 year gains that they used to have, then
money, being like water, will flow to where it can make better gains, which
will depress public market prices, which in turn, will push down private
market valuations.

This isnt' a short term trend but one to watch, over the next 10 years. I know
of a few macro based funds that are very concerned about this.

 __BONUS off the cuff prediction __

We will see a private company start to pay dividends rather than go public in
the next 3 years.

TL/DR \- private markets value growth, public markets value profits. You've
hit a bubble when you have the largest private companies not being able to
produce profits that the public markets expect. Once that happens everything
gets "messed up" with the chain of:

\- the largest private companies can't go public at their expected valuations
leading to

\- lower valuations for private companies, leading to

\- existing companies not being able to get teh vc capital they were
expecting, leading to

\- private companies going out of business, leading to

\- vc losses, leading to less vc money in the system, leading to

\- a "virtuous" cycle that deflates the bubble.

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mandeepj
I do not think we are in tech bubble at least for another 5 years. We have
real new products coming one after another across multiple domains like AR,
VR, self driving cars, drones and what not.

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snomad
1) From a valuation perspective, here are some of the major public tech
companies of recent years. If over-inflated valuations are the definition of a
bubble these are serious red flags.

Symbol, EPS, P/E P, -0.24, LNKD, -0.36, Z, -2.05, GRPN, -0.08, ANGI, -0.07,
ZNGA, -0.24, FB, 1.00, 81.52 YELP, 0.32, 137.07 KYAK, 0.43, 92.39 TRLA, -1.82,
TWTR, -0.98, KING, 1.90, 7.62 GPRO, 0.77, 75.27 ETSY, -1.27, BOX, -1.52, GRUB,
0.36, 103.92 SHOP, -0.28,

2) Ultimately, all economic growth comes from productivity. The major tech
companies of now are not focused on productivity - they are social, gaming,
and leisure. They generally won't yield the productivity increases of the
initial wave of the internet.

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strathmeyer
I graduated with a CS degree during the last bubble and never got my career
started so I will assume we're in the next one when I can find a job??

~~~
bgun
If you can't find a job with a CS degree right now, don't blame the industry.

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meira
I guess that we are and if this bubble burst, it will start a rally in all
countries to replace SV apps.

~~~
duaneb
Good. SV is a terrible place to work and I hate how all the jobs are there.

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Dirlewanger
When you have VCs giving the idea people free money, yes, it's a fucking
bubble: [http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-
pr...](http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-
vc-will-fund-your-startup-anyway/)

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foobarqux
You need to define what a "tech bubble" is. Everyone throws around the term
but it's hard to define exactly what it means.

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ohmshalalala
Keep calm and love tech; envision a world where everyone succeeds and
people/companies help each other succeed; and disputes are resolved with
civility (Zenefits/ADP, the spotlight is on you!)

