
Y Combinator's Graham Doesn't See "Bubble" in Technology - answerly
http://www.youtube.com/watch?v=wMBTRf1kgm8
======
patio11
My favorite line in that, after the interviewer asked PG what the big
successes for YC were and he answered AirBnB and Dropbox:

Q: "But aren't you forgetting Heroku? They just sold for $220 million."

A: "Oh sure, Heroku was a success... but you couldn't buy Dropbox or AirBnB
right now for $220 million."

~~~
grails4life
A better question would have been "what are the big failures of YC" - smaller
list to iterate through.

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seiji
Not the most convincing spokesperson for that issue.

"CEOs of all major banks don't see a mortgage bubble!"

~~~
pg
Sigh. I click on comments and the top comment is two line DH2 responding to
the title of the post. Not HN at its best.

Actually I did say that valuations are high, and they'll probably fall in the
future. But there is a difference between the ordinary rise and fall of prices
and a bubble.

~~~
A1kmm
How would you define a bubble then?

The standard definition is "trade in high volumes at prices that are
considerably at variance from intrinsic values".

"The valuations are high, and they'll probably fall in the future" implies (by
the way I construe it) "considerably at variance from intrinsic values". It
would be hard to argue that there is not high-volume trade in the tech
industry.

Individual prices rising and falling due to changes in intrinsic value, for
example, due to information about new competing technologies that could not
have been anticipated before, or unanticipated information about things much
of the tech industry is dependent on, like energy prices, can change the
intrinsic valuations.

But prices rising above the intrinsic value because of high investor
confidence and investment dollars from one company cycling around the industry
and buoying up the existing players is a bubble. It might not be as big a
bubble as the last bubble, but it is still a bubble.

~~~
pg
You choose one of several definitions you find on the web and call it the
"standard definition," as if that made it a sort of axiom. Then you interpret
its vague "considerably" as synonymous with "at all." But then you're one step
away from your own reductio ad absurdum, because you can now prove that any
random (upward) price fluctuation is a bubble, and that is just not how people
use the word. Stock prices rise and fall with investor confidence, but not
_every_ rise is a bubble. The term "bubble" is reserved for really extreme
cases.

Incidentally, I've found that when the conversation in a forum descends to
arguments about the meanings of the words being used, it never rises back up
to talking about ideas. So if you don't mind, I'm done with this one.

~~~
bostonpete
> The term "bubble" is reserved for really extreme cases.

Maybe so, but it doesn't tend to get tossed around until cases start to get
extreme. There are a lot of rumblings that there's a bubble building here. Can
you think of any examples in recent history when the rumblings of a bubble
turned out to be hogwash?

That said, recent history also suggest that the rumblings of bubbliciousness
tend to precede the ultimate burst by a good couple of years and the lead up
to the burst has been where the most frantic run up takes place, so when
bubble rumblings start, that might actually be the _best_ time to get into a
market... :-)

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jerf
Speaking as someone who does not live in the Valley, if this is a bubble it's
a great deal smaller than the 1999-2000 one, in the intangibles at least. Buzz
may be up in the Valley but it's nonexistent out where I am.

I do think there may be a rush to declare bubble. You know, a lot of the
promises that powered the first bubble are _still true_. The Internet really
is going to revolutionize every business. Opportunities really are everywhere.
It just was and is going to take a bit longer than initially expected, and
1999 infrastructure really couldn't support it. (Remember, in 1999, your top-
of-the-line server chip is a Pentium III Xeon, built on a 250nm die, at 600MHz
or so, and let's not even talk about the price of one of these. Or how your
non-very-tech-savvy customers are supposed to get to your very expensive
server.)

~~~
electromagnetic
> The Internet really is going to revolutionize every business.

No it's not. How is the internet going to revolutionize construction work or
trucking? The internet may improve aspects of the business, but it won't bring
out any revolution.

Do you really think how your houses foundation is laid will be changed by the
internet? Do you think how it's framed will be changed by the internet? Sided,
shingled, insulated, drywalled, carpeted, tiled, plumbed, wired? If you
genuinely think the internet will revolutionize these industries you're wholly
detached from reality and then we might as well be in a bubble.

~~~
eru
The internet changed airlines, but airplanes still fly the same way.

~~~
electromagnetic
Change isn't revolutionizing. Change is change. Revolutionizing is changing
virtually every aspect of a business. The internet didn't change how airplanes
fly, are refuelled or maintained. It changes how the seats are sold.

~~~
eru
Indeed. But since selling seats is now much cheaper, other aspects changed too
to squeeze costs. Though you could argue that changing regulation did as much
if not more to effect [sic] the rise of low cost airlines as the internet did.

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jswinghammer
I always think this is funny. Most people didn't see the housing crisis coming
before it was terribly obvious to everyone. Crying bubble doesn't make you
look like you're any good at predicting anything. The only danger of a bubble
has to do with debt.

Most startups are funded by savings and while that savings can be wiped out no
one is hurt after that hit. Businesses fail all the time and only when massive
amounts debt is involved is anyone else (outside the people directly involved)
affected.

A bubble would start to scare me if people started taking out massive loans to
startup companies that had no hope to make money. I sometimes wonder about the
quality of the companies that are able to raise money now but I'm not worried
about them taking it. The investors will learn from their mistakes and
hopefully we won't have as many daily deal sites for me to deal with. In the
meantime I'm using Yipit to help me who also raised a decent amount of money I
guess. Oh well.

~~~
richcollins
Are you sure that most VC comes from savings?

~~~
jswinghammer
Wouldn't it have to? You can't take out a loan for a VC venture for less than
5% considering the extreme risk involved in a poorly run fund. I'd imagine
debt financing would be cost prohibitive even if you found a bank crazy enough
to loan you the money.

~~~
richcollins
Are you sure that banks don't somehow have a hand in these funds. I don't know
-- just guessing that easy money has something to do with all of the cash
getting tossed around right now.

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marcamillion
PG has all these amazing quips.

> "If you have big plans initially, you are probably Webvan" > "The valuation
> of an early-stage startup is the % chance they will be big. i.e. a $10M
> valuation ~= 1% chance they will get to a $1B valuation".

Also, am I the only one that picked up that AirBnB and Dropbox clearly have a
valuation higher than $250M. I wonder what they consider their valuation to be
right now.

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swombat
I think the only valid answer to this is a tweet from
<http://twitter.com/hackernewstips>:

> _Today, @PaulG claimed there is no tech bubble. In unrelated news,
> @AdKeeperInc raised $40 mil. in funding for "Delicious, for banner ads"._

Which is exactly what AdKeeper is, btw.

~~~
pclark
<http://about.adkeeper.com/team/leadership-team/scott-kurnit/>

I think he knows what he is doing.

~~~
borism
_ad hominem_

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dholowiski
This is one of the classic signs it's a bubble right? (when people in the
industry claim it's not)

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arnorhs
Isn't the biggest and most obvious sign when people outside of the industry
_get into_ the industry?

As in when everybody's grandma had started investing in startups in 1999 and
in the real estate bubble when everybody's grandma was suddenly buying big
houses and selling them with a markup 2 months later.

~~~
adestefan
Wait until they start making TV shows about how to make money quick off of it.

~~~
daniel-cussen
That's actually a pretty good sign it's saturated, which is probably a
necessary condition for a bubble.

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emilepetrone
PG - your enthusiasm is inspiring.

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alain94040
Let's talk about burst scenarios. I'm not worried about the tens of startups
raising $500K at inflated valuations. It doesn't really matter.

What I'm worried about is someone like Zynga having a bad day. Imagine their
next game doesn't quite take off as much. Boom: their valuation crashes. Since
they are so linked to Facebook, I'd expect Facebook to crash as well. And once
Facebook is not so hot, then Twitter, with abysmal revenue, will crash too.

The question is: what happens after that? Angels stop pouring money in
startups, Silicon Valley goes into nuclear winter like 2003, or not?

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melissamiranda
No one really knows if there's a bubble before it bursts. They are easier to
see in hindsight.

On the one hand everyone in the world is getting a smartphone since the
pricing for chips has come down so much this year. That will make the market
for mobile computing/commerce/you-name-it huge.

On the other hand, Facebook hasn't really nailed their business model. Yes,
it's pulling in a lot of cash, but not enough to justify its valuation. Assume
Facebook IPOs in 2012 and because everyone except newborns is on the network,
the price gets bid sky-high, but they fail to grow revenue. Investors get
scared and pull out and take the rest of the tech market with it. Then
Facebook grows credits to the be the biggest payment platform in the world and
the whole market goes up again.

Like PG said, market valuations are a sine wave. They are educated guesses, no
one knows anything for sure.

Here's more on Facebook's valuation:
[http://community.nasdaq.com/News/2011-03/how-to-justify-
face...](http://community.nasdaq.com/News/2011-03/how-to-justify-
facebooks-65-billion-valuation.aspx?storyid=60634)

~~~
dstein
_No one really knows if there's a bubble before it bursts_

This is commonly quoted but not true. Everyone who had any clue saw the
housing bubble collapse coming a mile away. I was warning friends buying
houses in 2006 that they were buying at the peak of a bubble. And everyone on
Wall St knew exactly what was coming down the pipe.

~~~
melissamiranda
You have a point, but no one knew when it was coming (hence why I said you can
only see bubbles in hindsight). I should rephrase and specify that no one can
tell when a bubble will burst. And as long as a bubble keeps growing, you can
still make money buying into it.

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valjavec
In video it's explained like "valuations are high, but it's not a bubble".

Would that mean their growth will stop at certain level for a longer period? I
guess realization will need to meet expectation at some level. Expectation for
Facebook are sure high, but I doubt it can go go for trillion valuation
without multi^2 billion revenue.

Would love to hear more thoughts from Paul.

~~~
mlinsey
Another example from the video is that a 10M valuation for a startup isn't
really saying the startup is worth 10 million, but rather that it has a 1%
chance of reaching 1 Billion.

One can actually look at Facebook the same way. One could argue that Facebook
is competing with Google at being the primary way people discover information
online, and at being a driver of incoming traffic. So one could say that
Facebook's valuation with the GS investment reflects a belief that Facebook
has around a 25% chance of becoming as valuable as Google.

------
tammam
Would you ask the barber if you need a haircut?

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porter
Might want to rethink your position in bonds. Much more to worry about there
than in startups.

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ck2
Ha, his shirt is same color as this website bar.

(also just realized it's near prison jumpsuit orange, lol)

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michaelpinto
The tech biz has had boom and bust cycles for as long as I have been alive.
While it's true that some of the bubbles are minor ones we should all be aware
of the fact that the bubbles will always pop — it's not a question of "if" but
"when" (and "who" does it impact and my favorite "why").

If you accept this simple fact of life you'll always do better when a gold
rush does occur. Also the great thing about throwing away your rose colored
glasses is that it makes you stay in the field for the next boom.

Yours truly a survivor of the original dot.bomb fiasco who got his first break
in the era of HyperCard....

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obilgic
In this video the way he talks(volume, stress, etc.) is really similar to Mark
Zuckerberg.

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blazer
When someone says "There is a Bubble". Which means they are feared, got mass
hysteria, jealous of early investors in future hot companies & may actually
have some valid point."

Valid point is always about 20% of all over hype.

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rythie
The companies that are being talked about are not public yet - Facebook,
Twitter etc. so would a tradational bubble really apply to this?

~~~
jonny_eh
Why not? A bubble occurs when people over invest due to mass hysteria. Whether
the investments occur through a public exchange, or through second markets the
psychology is still the same.

~~~
rythie
Facebook may have a valuation of $60bn, but actually the ammount of cash
invested is only $2.34bn [<http://www.crunchbase.com/company/facebook>] so
that would be what was lost if it collapsed. Same for Twitter, actual
investments are $360m not the $7bn it maybe valued at. Though I guess it's
unknown how much has been traded through secondary markets.

My point was, what effect would it have on the NASDAQ or any stock market? And
would it mean that anyone investing in bonds really lost anything?

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swah
"Discovered SPAM filtering algorithm" ?

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patio11
PG wrote an influential article "The Plan For Spam" some years ago (early
2000s because it was old when I entered industry) describing spam filtering
using a naive Bayesean filter, a technique which was not totally unknown but
which was subsequently widely adopted. It works pretty well, especially since
you can chain it with other things like (probably the biggest one) IP based
reputation. One popular implementation, PoPFile, was by fellow HNer John
Graham-Cumming. For years I had an unfortunate hash collision and thought they
were the same people.

Spam researcher hat off.

~~~
eru
Didn't Paul Graham actually describe something more involved than a naive
Bayesean filter?

~~~
patio11
Feel free to Google it and post your own synopsis, but insofar as you can do
lossless compression to three words, I think those are the right three words.

~~~
eru
How about dropping the `naive' part?

~~~
_delirium
If I'm reading his essay correctly, it pretty directly proposes the kind of
Bayesian inference called "naive Bayes", i.e. which makes an assumption of
independence of the features (in this case words), and calculates the total
probability of an email being spam by simple multiplication of the per-feature
probabilities.

~~~
eru
Yes, that's true.

I was more thinking of his weird pre- and post-processing like >>> When new
mail arrives, it is scanned into tokens, and the most interesting fifteen
tokens, where interesting is measured by how far their spam probability is
from a neutral .5, are used to calculate the probability that the mail is
spam. <<<

~~~
_delirium
Yeah, I agree he has some interesting pragmatic tweaks on it. I suppose he was
proposing "[naive Bayesian] filtering" but not necessarily "naive [Bayesian
filtering]".

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namdnay
I never knew Paul Graham had an American accent :(

