
Are venture capitalists inflating the bubble? - gibsonf1
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/04/24/BU2V1D2RG0.DTL
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iamelgringo
I don't consider it a bubble unless there's a ton of "normals" pouring money
into a market, artificially inflating the prices.

The dot com bubble happened because companies IPO's quickly and early and
"normals" poured money into companies like pets.com. The real estate bubble
happened because "normals" started pouring money into buying and flipping real
estate.

In both cases, the valuations were way out of line because so many "normals"
had poured money into those investments, and millions of "normals" lost money
when valuations came back into line with a non-speculator induced feeding
frenzy.

Rhere are a handful of companies that are getting crazy high valuations by a
handful of investors competing with each other to get skin in the game. But, a
dozen VC firms competing with each other to give Groupon a crazy high
valuation doesn't a bubble make. It just means that those companies are
probably going to have to IPO or get bought for $500 million + for the
investors to get their money back.

I suspect that what we're seeing is investors being hungry after the stock
market crash of the last few years. Now that the investor's stock portfolio's
have regained 60% of the value they lost the last 2 years, they are playing
less defense with their money, and are willing to put some money on some risky
bets with startups. And we're seeing the feeding frenzy with the valuations of
a handful of startups.

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tewks
Great point regarding the lack of involvement of "normals".

However, the presence of "normals" alters only the magnitude of a phenomenon,
not the shape.

I'd suspect the shape of a phenomenon wouldn't necessarily change due to the
presence of "normals" because it can be shown that "normals" don't make better
or worse decisions on average than non-"normals". Furthermore, many "normals"
in the dot-com situation were guided there directly or indirectly by overeager
pension funds, brokers, analysts, and the like (non-"normals").

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sabat
Maybe in the social space, except that there are social companies with serious
profits (Zynga).

But overall? VCs are still not investing at a significant rate. It's better
than it was a year ago, but their funds are still much lower than previously.

I think this story itself is a bubble (i.e. a reporter in search of something
to report on).

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hugh3
There's always some sort of bubble in the VC industry. Two years ago stupid
money was being thrown at anything with "clean tech" in the business plan. Now
it's "social". Two years from now it might be... [actually I've racked my
brain and can't think of anything plausible. If you figure it out please let
me know and we'll be rich circa 2012].

~~~
ryanhuff
Its always good to zig when others are zagging. As dollars chase the flavor of
the month, there are likely voids in other markets. Perhaps enterprise
software?

