
Last Time It Was This Crazy, the Stock Market Crashed - dsirijus
http://wolfstreet.com/2014/10/09/priming-the-startup-scene-and-ipo-market-for-burnout/
======
forrestthewoods
"A parabolic rise in start ups with valuations of $1 Billion or More" or "A
linear rise in startup valuations on a logrithmic scale".

Amazing what happens in 10 years when worldwide smartphones go from a tens of
millions a year (2004) to over a billion a year (2014). Apple has 130 billion
in cash sitting overseas with nothing to spend it on. Microsoft has 90
billion. Google has at least 30 billion. Facebook has over 10 billion cash
(domestic + foreign).

So yeah. Startups are going to be valued at over a billion. Because there are
more than a couple of potential buyers who can spend that in cash.

My rule of thumb is that if you can get 100,000,000 users you can sell for
$1,000,000,000. You don't even need revenue! Crazy, but that is a shit load of
users. How many 2000 dotcom companies had a hundred million users? Hell did
even Google have a hundred million users back then?

~~~
bhouston
You are citing existing old ultra-successful companies, the best of the best,
to justify the high valuation of startups now. That isn't much of an argument.

> My rule of thumb is that if you can get 100,000,000 users you can sell for
> $1,000,000,000.

Lots of users does equal success because you only have to monetize them at low
numbers. But the number of 100M user companies is still very few.

> Hell did even Google have a hundred million users back then?

They had a dominant search position, so their percentage penetration of
internet search was huge, maybe higher than it is now because China and its
wall garden hasn't yet arisen.

~~~
lotsofmangos
I don't think it was a comparison of quality, just an observation of spending
clout. Things are being bought at billion dollar valuations that would have
failed, just because the top players don't want to even think of risking their
dominance, and that isn't going to stop unless they run out of money. This
means that some of the easiest exits available are in making things like
snapchat, where you will get bought just because you have users communicating
over it.

~~~
XorNot
Which is still a big risk: at some point, the market can crash simply because
the dominant players get low on cash to keep making acquisitions like that.
Suddenly all the assumptions and valuations people are relying on turn out not
match up to reality, and everyone stops investing while they take a long hard
look at their books.

~~~
lotsofmangos
Sure, it's a huge risk, not to mention a colossal waste of money for little
long term wealth.

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fidotron
What's often missing in these discussions is that a lot of the value of the
companies is based on the threat they present to actual profitable companies,
like Google and Facebook, and has nothing to do with whatever revenue they
currently have.

The real reason WhatsApp were worth so much is they started to look like an
existential threat to Facebook. Similarly for Instagram and SnapChat. Uber
will in the long run to Google.

One of the best get rich startup models today is to create something where it
looks like you'll take away the core raison d'etre of another entrenched
service, and it will radically inflate your value.

~~~
smt88
I disagree with your premises as well as your argument.

WhatsApp, Instagram, and SnapChat are valuable because they have users. There
are a million ways to monetize users once you have them, but it's hard to get
them. Google, Facebook, and others are large, humming machines that squeeze
money out of users, but WhatsApp, Instagram, and SnapChat are not. The latter
three companies are valuable because they can be fed into the larger machines
that already figured out how to monetize.

Unrelated: Uber certainly is a threat to a lot of companies (USPS, Zifty,
DHL), but I can't see the Google connection. In fact, Uber and Google recently
became partners.

If anything, Google is a massive, existential threat to Uber because it's
working to perfect self-driving cars.

~~~
zyx321
How in the world would Uber threaten the United States Postal Service or
Deutsche Post?

Even if that's a typo and you meant United Parcel Service (UPS), even if we
examine DHL independent of its parent company, they are heavily invested in
international freight and supply chain management. I see no great benefits
there from the ability to summon a cargo plane on a whim with your phone, nor
from handing it off to someone with no formal training/license/qualifications.

~~~
acconrad
Because Uber could eventually become a cheaper, easier, crowd-sourced version
of "the last mile"[1]. This is a huge threat to the thousands of DHL and UPS
delivery folk who make a living shipping parcels in the Last Mile, and to the
businesses they belong, which make most of their delivery fees via the Last
Mile. Unless Uber (or companies like Shyp) partner with them, it could bring
these old business models down.

[1] =
[https://en.wikipedia.org/wiki/Last_mile_(transport)](https://en.wikipedia.org/wiki/Last_mile_\(transport\))

~~~
makomk
There's already a cheaper crowd-sourced version of "the last mile" here in the
UK. They're called Yodel (formerly the Home Delivery Network), most of their
packages are delivered by non-employees using their own cars, lots of big
companies like Amazon use them, and they have a really terrible reputation.

~~~
smt88
We have LaserShip in the US, and they're also terrible (but not crowdsourced).

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marcus_holmes
I remember the dot-com bubble and how it all went really bad really quick.

I still haven't heard any convincing reason why "this time it's different".

~~~
bello
It's different because this time it's VC money, not people's savings.

When a company is listed, the stock price better reflect the actual market
value of the company (otherwise a dot-com bubble happens). However, if rich
VCs like to bet on startups, that's expected to be a high-risk investment.

~~~
bhouston
> it's VC money, not people's savings.

Well, technically VC money is people's savings, usually parts of pension funds
I believe.

~~~
lmm
A little of it is pension funds or sovereign wealth funds, but most of it is
from high-net-worth individuals. Investors are required to be financially
sophisticated; they know the risks they're taking.

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anovikov
In 1999 boom, Nasdaq P/E reached 200, while general stock market P/E was
'only' 34\. 6 times the difference. This time it is around 24 and general
market is at about 19. Just 25% the difference. So i think there is really
nothing to be worried about. There are few extreme valuations, and when those
correct (Zynga, Groupon, ...) it doesn't create a domino effect.

Even Snapchat doesn't sound so stupid - it may never make any revenue, but
having such a crowd of loyal users can bring a lot of cash to many companies
who have already figured out their monetisation (Apple, Google, etc.) so they
will be just buying a huge market. And they have a lot of cash to pay for what
they buy, and sometimes they do actually buy. So people investing in Snapchat
on these seemingly extreme valuations are likely not that stupid, or
subversive.

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neals
Just a thought, but before that crash, I wasn't actually using ANY of the
websites that were valued so high. And I think not a lot of people really
were?

I read about the big investments back then, but to me, they never became more
than a headline. Never a place to visit. More like "a place that I should
visit, sometime in the future". It was full of promise, not of value.

Though now, I use and actually pay for many services. I feel like they add a
certain value that, back then, nothing did.

Now, a billion dollar is a lot. But A billion people is too.

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joezydeco
Man, I wish fuckedcompany.com was still around. What's Pud doing these days?

If he won't do it, someone else should. It was a lot of fun back in Crash 1.0
days.

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eli_gottlieb
So you're saying I'll soon be able to pick up a bunch of undervalued stocks?

~~~
dagw
Possibly. The trick is to spot them among all the stocks will have dropped
from very overvalued to just overvalued.

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linkeex
I've always wondered what pure software startups are doing with millions of
dollars.

I mean come on you can develop awesome software without having a fancy office,
nice furniture and a super high salary.

Take me and my friends for example. We love building stuff and work for all
our products in university or at home. Also we're doing it for, what, like
400$ a month working 20-30h...

~~~
mtbcoder
At some point, you will complete school, your friends will go their separate
ways and you will lose access to university resources. At that point, you will
need a decent salary to pay for living expenses, support a family and all the
other things you wish to do in life. If your startup consists of even a
handful of people, competitive salaries/benefits start to add up and those
"millions" won't seem as much any more.

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lotsofmangos
I would like to see a map showing where all this money is going by office
location, coded for number of employees, as one thing that does seem odd for
many of us outside a few very select areas is that we are hearing about this
mega-splooge of massive quantities of cash, but very little of it seems to be
filtering through to the wider economy. As far as I can tell it is being spent
in very concentrated regions on relatively small amounts of people, largely on
businesses that are trying to target the pockets of a rapidly shrinking middle
class, which doesn't particularly bode well.

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Netcob
Or: the startup singularity is near!

~~~
lotsofmangos
Is that where Jeff Dean suddenly acquihires the ability to use 100% of his
brain and automates all the work for every single US corporation, making the
rest of the population unemployed overnight, other than those lucky few who
can grab jobs fetching Jeff coffee?

~~~
Netcob
Nah, that would be too much actual value. I think it's shortly after tweeting
something like "poopr - have your BMs delivered to your friends with
quadcopters every day for free" makes Facebook buy your twitter account for
$25 billion.

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junto
I've recently sold all my long term shareholdings on a similar gut feeling.

I wonder what will be the trigger that sets off the selling frenzy this time
round?

~~~
dualogy
Looking back we'll find it was this very comment of yours. How do you feel
about that ;)

~~~
junto
Slightly scared: [http://www.theguardian.com/business/blog/2014/oct/16/six-
rea...](http://www.theguardian.com/business/blog/2014/oct/16/six-reasons-the-
worlds-stock-markets-are-falling)

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qwerta
It is all related to quantitative easing, there are not savings, but easy
money around. Totally different dynamics compared to last stock bubble.

~~~
bhouston
I have not read a good analysis as to the end game of quantitative easing.
What does the end of that era fortell in terms of US macroeconomics and how
does quantitative easing feed into the VC ecosystem? Or is quantitative easing
here to stay and we will just have a related long term slow devaluation of the
USD?

~~~
tonyedgecombe
When western governments hold so much debt the only realistic way of dealing
with it is inflation, hence QE.

~~~
rtpg
The really interesting thing about QE is that we haven't really gotten
inflation associated with it, at least not in any form bigger than pre-QE
days.

My pet theory is that money supply and inflation no longer have much of a
correlation. In fact, they might never have.

~~~
Amezarak
They are, of course, weakly correlated. If the US government dropped one
million dollars cash into everyone's yard via helicopter, we would probably
have some inflation.

But contrary to sibling poster, economists have known for many decades that it
is only a _weak_ correlation and plenty of other forces are at work. The weak
inflation resulting from QE was predicted by mainstream economics and does not
come as any surprise. This is nothing specific to the US economy - Japan and
the EU are similar real-world examples if you don't care for the economics and
the modeling.

Japan is a fine example actually - 15 years later, Japan is, as expected,
still not seeing some kind of phantom, invisible-hand "correction" causing
massive inflation.

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erikb
I'm reading things like this since 5 years. When do people start to analyse
what's really happening instead of saying "according to what we experienced
10-15 years ago, it should be way worse than it was back then." There are
reasons why the start-up market is still growing but wasn't in 2000.

~~~
bhouston
> I'm reading things like this since 5 years.

Just because there are repeated warnings about irrational exuberance, and we
haven't had a correction YET, doesn't mean that there isn't irrational
exuberance.

> When do people start to analyse what's really happening instead of saying
> "according to what we experienced 10-15 years ago, it should be way worse
> than it was back then."

I don't think it needs to be way worse that it was then. Corrections are
different every time.

> There are reasons why the start-up market is still growing but wasn't in
> 2000.

Define "start-up market" and "growth", because in 2000 prior to the crash
there was a ton of money going into startups, a ridiculous amount. It was only
after the crash that things went sour.

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1945
The market has the capacity to stay irrational. I would not start shorting
after a 3-4% pullback..

~~~
lotsofmangos
I think most people have that saying the wrong way round. 'The market can
temporarily look like it is rational', would seem more accurate.

~~~
lmm
If the market goes "rational" where that was what you were betting on, you
make money. You go bankrupt when the market "stays irrational", i.e. the
stocks you thought were overpriced stay overpriced.

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notastartup
I'm very worried about the property bubble collapse in China that will happen
in the near future. I'm seeing the same patterns. People from said country
buying up expensive property overseas, people lose fortune when property
bubble explodes. It happened with Japan (remember when Japanese yakuza were
buying up property in West coast). It surely to happen with China (buying up
property in west coast like crazy).

~~~
melvinmt
Can you explain why a collapse in China would affect the West Coast?

~~~
smt88
Seems s/he's saying that wealthy Chinese people are buying property on the
West Coast of the US.

If their market crashes and individual wealth drops, they wouldn't be able to
pay their mortgages, which I guess would be a problem for lenders in the US?

Lots of leaps here, but I can see a connection if his/her facts are right.

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pearjuice
The only ones loosing will be the lower end of the food chain. Everyone on top
knows what's coming and is storing their assets on single state islands far
away from where the water will be going dry. You really think all those SV
people preaching "this is not a bubble" are 100% in and haven't at least
liquidated 99% of their value from the stock market?

All what's left is digits on screens and papers.

~~~
eru
If you are managing Other People's Money, you are better off staying invested
and collecting fees.

