
Sam Altman's Bubble Talk Bet Is 1 Year Old - ivankirigin
http://blog.samaltman.com/bubble-talk?one_year
======
projectramo
Here are his three bets reproduced for comments:

1) The top 6 US companies at [http://fortune.com/2015/01/22/the-age-of-
unicorns/](http://fortune.com/2015/01/22/the-age-of-unicorns/) (Uber,
Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are currently worth just
over $100B. I am leaving out Snapchat because I couldn’t get verification of
its valuation. Proposition 1: On January 1st, 2020, these companies will be
worth at least $200B in aggregate.

Seems he is on track for that one.

2) Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase,
Docker, and Weebly are a selection of mid-stage YC companies currently worth
less than $9B in aggregate. Proposition 2: On January 1st, 2020, they will be
worth at least $27B in aggregate.

Hmm... not as confident but I would not bet against it.

3) Proposition 3: The current YC Winter 2015 batch—currently worth something
that rounds down to $0—will be worth at least $3B on Jan 1st, 2020.

[http://techcrunch.com/2015/03/23/here-are-the-companies-
that...](http://techcrunch.com/2015/03/23/here-are-the-companies-that-
presented-at-y-combinator-demo-day-day-1/)

[http://techcrunch.com/2015/03/24/y-combinator-
demos/](http://techcrunch.com/2015/03/24/y-combinator-demos/)

Might be on track as well, though I am even less confident.

If I were a betting man, I would say he is more right than wrong, and on track
for all three.

I think this underscores how long 5 years is in internet time.

~~~
NumberCruncher
Basecamp is now a $100 billion dollar company, according to a group of
investors who have agreed to purchase 0.000000001% of the company in exchange
for $1.

Source: [https://m.signalvnoise.com/press-release-basecamp-
valuation-...](https://m.signalvnoise.com/press-release-basecamp-valuation-
tops-100-billion-after-bold-vc-investment-c221d8f86ad7#.m4mgha7cp)

~~~
reitzensteinm
This is a trite complaint, and in my view, misses what is often bogus about
the lofty valuations - liquidation preferences provide a lot of downside
protection.

For instance, if I invest $1bn in Uber at a $10bn post and a 1x preference, I
get the first $1bn of any sale. Yes, I invested at a $10b valuation, but I
don't actually lose any money unless the valuation sinks below $1bn.

This is a much better deal than simply paying $1bn for 10% of Uber, and in my
view, actually does not imply a $10bn valuation at all.

~~~
gjem97
You're right on, and there may in fact be a half dozen more material economic
terms which also adjust down the implied $10bn number. Add into that the fact
that each round often has it's own set of terms, and you begin to realize that
the "valuation" numbers thrown around mean absolutely nothing.

------
sama
I feel better about this now than I did a year ago. Proposition 1 is up about
50% in the first year, and proposition 2 is up about 65%.

The main point remains--we spend far too much time talking about whether or
not startups are in a bubble. It's boring and it gets in the way. Sometimes it
will be true and sometimes it won't, but the stories claiming a huge bubble
for the last 10 years have been generally wrong.

It was telling to me that, even with the fever pitch of VCs calling for the
end of the world last year, only one investor (a TechStars mentor) would take
this bet.

The goal of this bet was to deflate the bubble conversation, and that seemed
somewhat effective.

~~~
vasilipupkin
Hmmm. I think at least some of these companies are worth less now than a year
ago. Zenefits, coinbase, palantir, mixpanel, etc. am I wrong? Agree on the
bubble issue. It's a boring discussion

~~~
nostrademons
That's why the bet is structured as a portfolio. In startup investing, it
doesn't matter if some of the portfolio loses big (or everything) as long as
there's at least one winner that expands many-fold.

~~~
vasilipupkin
Sure. But I'm sceptical of the claim that the whole portfolio is worth 50%
more than last year. I don't know for sure, but as an example, Palantir
valuation is down

[http://www.wsj.com/articles/t-rowe-price-marks-down-most-
of-...](http://www.wsj.com/articles/t-rowe-price-marks-down-most-of-its-tech-
startups-1460759094)

------
gatsby
I was curious, so I looked up what the press has reported on each company's
most recent valuation (and therefore, these numbers could be off, because they
don't factor in reported write downs / markups from individual investors [i.e.
Fidelity], financing rounds not reported by the press, huge gains/downturns in
revenue over the last year, etc.)

1.) The top 6 companies mentioned are now valued at $146.5b.

2.) The 9 midstage YC companies mentioned in the article are valued at
$15.43b.

------
blowski
Did anyone take the bet?

\---

EDIT: OK, found out that "Boston-based venture capitalist Michael de la Maza"
took him up on it. [http://money.cnn.com/2015/03/30/technology/sam-altman-
tech-s...](http://money.cnn.com/2015/03/30/technology/sam-altman-tech-startup-
bubble-bet/index.html)

~~~
stale2002
Lame. It was just someone who wanted to work with Sam. Not someone who
actually believed we are in a bubble, and was "Putting his money where his
mouth was"

------
tacos
Previous discussion from longer than 1 year ago:
[https://news.ycombinator.com/item?id=9271679](https://news.ycombinator.com/item?id=9271679)

My comment(s) then:

Ironically a basic statistics class indicates that cherry picking companies
that deliver 2x, 3x and ... whatever the fuck that third pick is ... as a
guaranteed return over 5 years is indicative of the overenthusiastic hype that
historically surrounds bubble valuations.

#3 is a die roll. #2 is the killer. And I might take the bet on just #1.

I admire Sam's balls but the externalities here are immense. The greatest
financial mind of our time built Berkshire Hathaway to $350B over 50 years. GE
is worth $250B. Microsoft $340B.

To believe Sam's motley list of companies can either hold onto valuations
approaching those "real" companies for five more years, let alone actually
generate viable earnings and go public (even at goofy P/E multiples) in line
with what GE, Microsoft, or Buffett's candy, ketchup and mac'n'cheese
subsidiaries alone make seems ... optimistic at best.

If he loses, might I suggest the book title? "Oops! Brands Aren't Businesses!"
by Samuel H. Altman.

------
bunkydoo
I would not call tech industry a bubble by any means. However, since my work
took me away from Silicon Valley - I have to say there are almost no startups
that have really changed my life in any noticeable way. All I have watched
happen is my new smartphones and laptops get thinner, and the apps on them
switch to flat design language. Glass was neat, more novelty though. Cardboard
was cool, also a novelty - plus I don't game so VR doesn't effect me (yet) and
on top of that, neither of these were made by a startup - but a huge corporate
entity. I thought back in 2010 I would be experiencing my entire tech life
through Augmented reality by at least 2015. Needless to say, I am not. :(

------
pj_mukh
"The gleeful anticipation of a correction by investors and pundits is not
helping the world get better in any meaningful way."

Probably the most important line of the post. Hate that someone invested $<X>
M in an app that just sends "Yo" to other people? Great, don't use it, don't
invest your money in it. Yelling on the sidelines about how crappy it all is,
seems counter-productive. Writing self-fulfilling prophecies to get clicks
seems even more egregious.

~~~
vykvykvi
Uh oh, it looks like someone has skin in the game and is worried. :'(

~~~
pj_mukh
More like broke-ass engineer annoyed at my fellow ilk on the peanut gallery.
Though in a way, I don't want to return to the days the Blue-Chips ran the
show, if that is what you want to call "skin in the game".

------
vasilipupkin
So far, I don't think he's right on all 3

~~~
raldi
This would be a much more useful comment if you explained why.

~~~
vasilipupkin
If you take the one year out results, and using those growth rates project out
to end of bet period, he would not be right on all 3. But it's only been one
year and tech doesn't grow linearly. That's why I said so far.

~~~
raldi
Another comment in this thread claims to have done the same analysis and come
to the opposite conclusion. But neither of you shared your math. Could you
show the analysis that led to your conclusion, so we can compare it to the
other one?

~~~
vasilipupkin
[http://www.wsj.com/articles/t-rowe-price-marks-down-most-
of-...](http://www.wsj.com/articles/t-rowe-price-marks-down-most-of-its-tech-
startups-1460759094)

------
Xyik
Betting on valuations of private companies is a bit silly.

------
KKKKkkkk1
TLDR: Venture capitalist claims the tech sector is not in a bubble.

~~~
david927
Exactly. To be fair, it's pretty hard to remain objective in his spot. If he
spent a year anywhere else in the world, doing something different, he would
certainly have a different perspective. But that's fine. He should feel the
way he feels about this.

I was going to make a similar bet but in the other direction. My instincts say
that 90% of the companies mentioned would be out of business by then and the
remaining in the "still-going-but-not-relevant/MySpace" category. The coming
Tech Winter will be devastating to the unicorns, precisely because so much is
expected from them.

But I don't want to be one of those people. A community is built by people
supporting each other, up or down, Tuesday or Wednesday. Maybe Sam is right
and maybe I am, but at the end of the day, let's innovate and let the future
unfold how it will.

------
hindsightbias
Protip: Bubbles always last 18 months longer than you think they can.

~~~
Pxtl
I figured the Canadian real-estate bubble would pop like 5 years ago. Not so
much.

~~~
mrtron
If the 'bubble' pops now, prices will still be higher than they were 5 years
ago. That makes your prediction extra bad.

Unless you normalize by currency, in which case its just a fairly bad
prediction.

------
neom
He'll likely be right on all 3 but only because 1 company in each will
disproportionately skew. His bet is overly broad.

Palantir and SpaceX are very promising companies, it's hard to say if their
true value will be realized by 2020.

Stripe alone is worth $10-15B if you ask me.

Where he might stumble is the 3rd, however finding $3B of worth in what must
be 30+ companies shouldn't be hard, depends how badly the global economy slows
in the next 4 years.

I'm not sure this really does much to disprove the insular and bubbly nature
of technology investment, however.

~~~
spencefu
The skew is the point though. Startup valuations are supposed to work such
that a small number of successes make up for a large number of failures. The
press loves to harp on the individual cases, but all that matters for
valuation is expected portfolio performance.

~~~
neom
Hedging is a thing in investing, yes. I do agree the press reports when
businesses are perceived to not be doing well. I don't know I agree they
usually point heavily to that being a venture thing. I'm still not sure much
of this is the indicator of a bubble, that's all (it's a pretty boring bet?).

