After Twilio filed for IPO, someone wrote a "here's what Hacker News said about Twilio," which only focused on the hilarious-in-hindsight but negative comments about the startup (https://news.ycombinator.com/item?id=11786464). Naturally, it got massive retweets from venture capitalists who espouse the haters-gonna-hate attitude.
As dang notes in that other comment thread, this kind of argument doesn't look at the other side at all: there have been some seriously shady dealings going on with unicorn startups. IPOs are failing. And let's not get started on Theranos.
Not to mention all of the unicorns supposedly worth billions that aren't IPOing. Because IPOing would finally let the public decide what they are worth (it would be a harsh wakeup call for a lot of them). Instead we're stuck with their VC cronies stuffing self-serving valuations down everyone's throats.
By the way, I too am worth 2.5 billion dollars. What?! You want me to prove it?! Get off my lawn!
>By the way, I too am worth 2.5 billion dollars. What?! You want me to prove it?! Get off my lawn!
While I agree with the first part of what you wrote, when it comes to this I can say:
You don't need to prove it (and those unicorns didn't prove it either). You just need to be able to get some millions of dollars on your 2.5 billion self-valuation, and you'll be as good as them.
>You just need to be able to get some millions of dollars on your 2.5 billion self-valuation
Mathematically speaking you just need to get someone to give you a single dollar in exchange for 1/2500000000 of 100% ownership, meaning that 100% is theoretically worth $2.5 billion.
Say their are two companies. 'Georges Growers' and 'Dave's Dilly Daddlers'.
I give 'Dave's Dilly Daddlers' $100,000 for 10% of the company. But with the condition that if it's valuation ever falls below 1 millions dollars I get 20% equity, and if the company goes bust I get paid back before any other investors, and I get the title to the founders house.
I also give 'Georges Growers' a $100,000 for 10%. But with no conditions, I'm just buying a portion of the company.
Are both of these companies worth 1 million dollars? In some sense yes, but in a much more meaningful sense no. And many recent deals have been closer to the former than the latter.
Sam's take on bubble talk from his Hard Tech is Back post said it best:
>Leave the Medium thought pieces about when the stock market is going to crash and the effect it’s going to have on the fundraising environment to other people—it’s boring, and history will forget those people anyway. There has never been a better time to take a long-term view and use technology to solve major problems, and we’ve never needed the solutions more than we do right now
Well, unless your life plan is to start a Hard Tech business that will require 5 years of funding before anyone takes it seriously.
Then this is is kinda like telling a soldier about to deploy to Afghanistan that they don't need Kevlar because it's never been a better time to bring democracy to the middle-east.
"Markets can remain irrational longer than you can remain solvent"
Or perhaps the more apt way of putting this in our times is:
"Multiples will be crazy high as long as central banks keep interest rates crazy low"
Rather than thinking about this in terms of bubbles I think it's fair to say that the probability of getting very high ten year returns on the US stock market at these valuations is low. The problem is there's no other asset that will give you the chance of a better return. That's no coincidence.
Apple's P/E is 10.85 according to Yahoo Finance. That's low given current interest rates.
EDIT: The average Nasdaq P/E is 22.55 ... This is historically high but is ~4.4% vs. the 10 year treasury being 1.61% (and I say that painfully as I attempted to go short at one point). That is basically the story right there.
> Multiples will be crazy high as long as central banks keep interest rates crazy low
I have no idea how earnings multiples wound up with their pay-offs in the denominator. (Since it makes stupid things look bigger, and by default, anecdotally, most people agree bigger is better, I'm going to blame investment bankers.)
Thinking of a 22.55 P/E as a 4.4% E/P, i.e. 2 percentage points above the 30-year's 2.4% [1] is hugely clarifying. (I personally prefer the Shiller CAPE [2] for long-term broad-market assessments. It sits at 25.93, i.e. a 3.9% yield or 1.4 percentage points over the 30-year.)
I totally agree. Companies price is directly related to future expected cashflows. Its perfectly rational to discount future cash flows by the interest rate. If no one in the economy wants to spend money, its not as expensive to borrow it.
For those of us who are young enough (30 or less) to not have witnessed the internet bubble at a conscious age, we might be tricked to think that we're in a bubble due to certain indicators. The NASDAQ index, the valuation prices, the money poured into venture capital, etc.
To those of you like me I recommend you to read about what was happening in 95-99. The panorama was crazy, and today's context doesn't compare to the one of those days.
At the end, if the macroeconomic environment changes, who cares? Yes, paying attention to the macro is important and that may even imply changes in strategy, but should you not start a startup because there's a bubble? Even worse, should you (person who hasn't built anything but criticizes everyone who builds something) try to convince your friends not to start startups because we're in a bubble?
The main difference between today and 1999 is that digital products are actually generating value in people's lifes. Please don't compare pets.com to WhatsApp
"The main difference between today and 1999 is that digital products are actually generating value in people's lifes. Please don't compare pets.com to WhatsApp"
Not all the tech companies that were hot in 1999 were like pets.com. Google and Amazon were amazing new things back then, and other companies like Dell, Sun and Qualcomm were also high fliers on the NASDAQ. (I'm old enough to have been an investor in 1999.)
I think the most significant difference between the 1999 bubble and today's situation is that today, many of the companies with astronomical valuations are not public. For example, if Uber's valuation tanks, some employees and some rich investors will unfortunately lose money, but most people will see little effect - if you have a 401-K invested in an S&P 500 index fund, you won't care too much. And the big public tech companies that are making money, like Google, Amazon, Apple and Facebook, probably won't be affected much if all venture backed companies disappeared tomorrow (except that their labor market would be flooded with developers). The NASDAQ might take a dip, but it won't be like 1999.
Since you didn't really experience, I'll tell you that Email, chatrooms, Ebay, Napster, being able to check stocks online, stupid stuff like that was amazing at the time actually...and a lot of the business models which would later go on to make money were being talked about at the time...but the technology had not caught up to the economic feasibility. You couldn't have a Youtube in 1999 because there wasn't enough bandwidth. Now what I think could be happening, using the 90s vs today heuristic you're suggesting...is that there is a massive amount of over-enthusiasm in AI where people think it's basically a magic box that you put stuff in, and you get Lt Commander Data on the other side...and there is no understanding or differentiation between what the different forms of machine learning, and what is technologically feasible, how hard it is to build, etc, that is going to cause a bubble because people don't want to miss out on AI, even though they don't understand what it is. That being said, there are many different forms of web and data tech...mobile, cloud, IoT, etc that you can invest and diversify in now...whereas the late 90s was a lot more monolithic - PC's and websites.
> the technology had not caught up to the economic feasibility.
Nowadays it often seems the other way around - the technology is there, but the economics are questionable. The disconnect between valuation and even the most optimistic revenue projections for something like a chat app or a picture-sharing site can reach two orders of magnitude in the wrong direction. The market for tech companies themselves has become completely disconnected from the market for those companies' products and services.
No, let's compare it to nonsense like SnapChat being valued at $16 billion. Pets.com generated value, PetSmart's $400+ million a year profit can attest to that market. Their issue was horrendous mismanagement of funds, and shipping stuff for more than it was selling. The biggest issue with companies then was going public.
I think writing off SnapChat as "nonsense" might be unwise. I'm 35 and even I enjoy sending snaps back and forth with my wife. (And I'm talking G-rated stuff; look what the kid just did, that kind of thing.) And I'm not even really the target demographic. It's a new communication paradigm, much like Twitter was. (A completely different paradigm, but similarly new.) It will likely have similar challenges. But it isn't just some "nonsense".
That's a hard question to answer precisely, but one I think about often. I use snapchat and text and gchat extensively, and I often wonder what it is about snapchat that makes it more convenient. As best I can tell it's two things:
1. The ephemerality makes me feel less self-conscious about the quality of the picture. It's going away momentarily, never to be seen again, so all I care about is conveying what is happening in the moment, not getting the perfect shot.
2. It's fast. Snapchat sacrifices image quality for speed to some extent, and the interface is faster and more fluid, particularly for broadcasting a snap to multiple people.
These things combine to make sending snaps feel very conversational. When I think of sending an image by text it feels like a hassle, and i'll only do it if it's a picture I want someone to have for more than 10 seconds.
I'm not sure if this explanation totally conveys my meaning, but in using it, it is quite clear to me that there is indeed something categorically different between snapchat and MMS texting, though it is admittedly somewhat hard to pin down what that is.
I get it, they are disposable pics. I'm in the camp that anything I take time to snap a picture of, isn't just some disposable moment that I want a super compressed version of. Far too much junk, overly compressed, and overly filtered pics as it is.
Ya, but to me, that is exactly the perspective taken by snapchat. It allows you to capture moments you want to convey to people in a throwaway sense, but frees you from keeping them around mucking up your digital environment for eternity.
It allows you to express yourself via images in a fundamentally different way. To simply photograph/record the thing happening in front of you because it was funny or amusing for a second, but not have to ask yourself the question "is this worth preserving forever?". It turns a snap into the equivalent of throwaway, idle verbal conversation.
Texts/instagram are the written letters of the digital age. Careful, considered (and if not, people think you're an idiot and look down on you). Snaps are in-person chatter. They don't have to be super meaningful or well composed, just the digital equivalent of "how about this weather we're having".
I don't know the answer to your question, but I do want to point out that there's something a little jarring about positing that its valuation is nonsense and wondering why its users find it valuable in the same thread. I don't get Snapchat either, but maybe that means I shouldn't poopoo it?
We send texts too - Google Hangouts actually - and take plenty of non-snap pictures, but you don't need to save everything in life. When you're hanging out with someone in person you're not recording every moment. Snapchat is kind of like a virtual version of that.
This is anecdotal but half of the time I've sent one it was never received by the other party. And, it didn't tell me it wasn't received, the other person just didn't receive it. I'm not sure if this is because it's going across carriers, across OSes (android to ios), or some other factors I'm not aware of. Snapchat just works.
I would say one-to-one "snaps" are relatively rare. People are usually blasting it off to at least a few people. Through text that's a lot more taps. If it's a group text, now you've probably annoyed a few people.
I know it's not popular in the us, but it sounds like a use case covered by whatsapp.
I wonder if it's mostly just network effect? Here pretty much everyone already has whatsapp so you just use that instead of registering/installing a new service/app.
I was tempted to upvote you, as I also think Snapchat is nonsense.
But I have discussed Snapchat with the youngsters at my work. They all "get it" in a way that I don't seem to. And we use it for advertising, and it brings in revenue (our target market is aged 18-25).
The 18-25 group has proven app after app, that they have zero loyalty, and are the most likely to jump ship to the next great thing. I don't think there is really much to "get" about SnapChat, other than that it's currently the hot app to use. Again, this was a response to OP, who stated companies like Pets.com offered no value, when clearly they did. Their problem was horrible management.
I lived through it and yes, yes, yes... Today is nothing like dot.com. It was crazy... you had pre-revenue companies with no real working product raising series A, B, C, and then going public all within a year. Total unhinged market mania.
> you had pre-revenue companies with no real working product raising series A, B, C
Color[1]? Theranos? uBeam? Clinkle? Those crazy things are absolutely happening now, but the scale is important to know. (I don't know how the scale compares to the dotcom bubble.)
I was curious if you could tell me what value WhatsApp is actually providing? or for that matter facebook or twitter? Are they on the bleeding edge of scientific discovery?
I always felt they were like a social outlet for folks to waste time and their only revenue stream was advertising.
>>I was curious if you could tell me what value WhatsApp is actually providing?
I used to think like this too. Then I went on an overseas trip with a group of thirty baby-boomers (parents' friends). What I saw blew my mind.
Despite the fact that most people on the group could barely use a computer, they were very savvy and frequent WhatsApp users. They had created a group prior to the trip and everyone was a member, and throughout the trip the app was used to coordinate meeting times, share cool finds, joke around and exchange photos taken with the rest of the group. If a sub-group split up from the main group for a few hours, they quickly created their own group within the app, and then discarded it after joining with the main group. All within seconds. Even the several 70+ year olds in the group were using it and having a great time.
Then I realized: WhatsApp is an easier-to-use, more reliable, more secure and free version of SMS. That's why it's a big deal.
Outside of the U.S., WhatsApp has replaced text messaging for a massive amount of people.
I'm not quite sure what happened to make this possible, but I think one related factor has to do with prepaid cell phone plans being more normal and less the exception, and very conscious data usage.
Ah, that's a good point. For the major U.S. providers, sending a text to an international number isn't any different than sending a domestic one.
However, sending a text message internationally — when I'm traveling to another country — is totally different and the rate is insane: $0.25/$0.50 per SMS/MMS sent. So they essentially force you to buy a special 30-day international texting bundle to be able to keep in touch with your friends back home.
The rates for data abroad from U.S. carriers are even worse: $60 for 300MB. I'm anxiously awaiting a "Whatsapp for cell data" style plan. How do you handle that?
It's the first non-sms communication method that I see used everywhere around me, and all the time, and for everything.
Sure, email existed and even my grandmother started using it years ago. But email wasn't as ubiquitous to daily life.
Over here, WhatsApp is used by teachers to communicate with students, my driving instructor to set up appointments and let me know he's at the door, my parents to share random bits of their life in the family group, my friends to just meet up and have an ongoing pointless conversation, my colleagues to figure out who's in the office and when, people my various 'associations' to discuss when to meet and what to do, clients who want to know if I'm available, and so on.
The amazing thing is not WhatsApp as an app or what it's used for. It's the fact that everybody does it.
Actually, this - I believe - is the entire premise why we have no bubble this time around. It's because these companies are indeed on the bleeding edge of scientific discovery. The brightest minds in research work at these companies. The research and development that comes out of these companies, that create new open source work, and spawn out new markets in analysis, intelligence, economics - all of the work from these companies fuels growth for every other business out there who use any part of the technology stack to drive their business model. Just my 2 cents
I'll give you Facebook, and MAYBE Twitter. But WhatsApp is a messenger service, a space where tons of others have come and gone. I'm not sure what bleeding edge they are sitting on in regards to scientific discovery.
Facebook is worth more than all the major auto manufacturers in the world combined. It is worth more than Boeing and Airbus and General Electric combined.
Where do they make the majority of their money? Is it advertising? or is it investments that they have made with public money? I am curious what their profits look like that their valuation is 328 Billion dollars.
That's because the VW stock price crashed because of "Dieselgate". The VW AG's assets alone are worth €381.935 billion and they achieve a far higher revenue of €213.292 billion (VW AG) vs $17.928 billion (facebook).
There are 1.2-1.5 billion vehicles on the streets worldwide. Roughly 1 billion people use WA and roughly 70% use it daily.
There's clearly value because lots of people use it. You don't need any technical breakthroughs to create value. Possibly to monetize it but not to create it.
Btw. the underlying technology is pretty cool imo but that's besides the point. I mean they had what 30 engineers when they were bought (for about 500 million users)? Erlang yay.
No one is denying their proliferation, we're debating their "bleeding edge scientific discovery". What was the percentage of internet users that were on AOL IM during its peak?
It was the only messenger available for MOST platforms, including the then-dominant BlackBerry. It provided feature parity with BBM, including guaranteed delivery of prompt failure notices, which was a bigger deal then. It's why my friends and I started using it years ago.
Just because the bubble hasn't burst yet, doesn't mean we're not actually in a bubble. That line of reasoning irks me a bit, but still, it is laughable how the imminent bursting of the bubble has been predicted for nearly a decade.
I'm betting I could find articles arguing against being in a bubble (like @sama’s) from each of those years as well. There will likely be a deflationary period in tech in the next decade, worse than the small recession we witnessed at the transition between 2015-2016. But I don't think tech is so separate from other market sectors anymore, so it won't (IMO) be a tech-specific thing, just a normal market cycle.
The housing bubble lasted a long time, even when people in 2004 were sounding the alarm bells. It kept going. A bubble bursting doesn't mean everything is getting wiped out, and it's nothing to fear...just something to hedge against. It does hurt people, and that's unfortunate, but it has to happen. It might even put me out of a job, I hope not, but it's very possible.
Yet as much as it hurts, it has to, and will happen. Doesn't mean it will be as bad as 2008, but it's part of the business cycle. I don't think there's any denying that valuations have gotten way out of hand, especially in the private equity and VC world. But trying to call a top is just as hard as calling a bottom, if it were easy policy decisions would be easy.
It's a "creative destruction" within the capital markets. Gets the dumb money out...funds businesses that actually make money and builds upon the rubble on a stronger, firmer foundation.
That assumes the Fed can make the economy grow with the flip of a switch, and that it could contain contagions. I'm all for taking away the Fed's discretionary powers, I think that would smooth the business cycle, but it would not eliminate it. Recessions can occur naturally.
My wife showed me a video earlier of some kids laying under a trampoline, and on top of the trampoline was balloon slowing filling with water. The kids are giggling because they know what's going to happen, they just don't know when: the balloon will pop and they'll get soaked. But the balloon continues to fill with water until it's almost the size of the trampoline top itself. It seems likes it's taking forever to fill, and the balloon is much larger than anyone in the video expected. Maybe it won't pop...and then it finally does. The inevitable happens and the kids are soaked.
I don't think the argument is whether we are or are not in a bubble. It seems pretty clear that a bubble is filling around us (whether that is a slow or quick fill is a personal point if view). The argument really should be how long do we continue to risk getting soaked versus staying dry (keeping our investments). I think some are finding a solution by removing themselves from the equation and taking their investment dollars elsewhere. And that singular act, if/when it starts to exponentially grow, will ultimately decide the timing of the burst.
I'm uncertain if this is true. The market is the market is the market. The value of a company is what investors believe it to be. In tech, unlike an industry like lets say, Automobiles, this "worth" is very difficult to quantify. Tech companies can be scaled to near infinity (Apple) or go to zero with one wrong move. Investors are placing their bets.
Whatever industry replaces "tech" as the next great revolution (perhaps AI?) will have "bubbles" orders of magnitudes greater than what we're seeing now. If you think we're in a bubble now, which we very well could be (I'm unsure), just wait for the future.
It's housing prices in Flint, Michigan. It hit a peak of $172K in 2005. By 2011 it was $106K, or about the same price as in late 1995. Currently it is at $140K, which is essentially the price in 2000. Assuming it goes at its current rate, I guess it will be about the year 2020 before it recovers to its 2005 high.
Now, it's not really fair to call this a "bubble" since externalities are at fault. However, if you look at the increase (1.6x in 10 years) against an inflation rate of 3% (1.3x), you can see that housing was over valued during that period. I'm pulling the inflation rate from http://www.usinflationcalculator.com/inflation/historical-in..., and if anything overestimating it.
If you look at today's price it has a multiplier of 1.3 from the 1995 price, so it is still slightly undervalued, but should catch up to inflation in the next few years.
My point is that despite the credit crunch being the underlying cause of the crash, the market had been growing at nearly twice inflation for 10 years. 11 years after the crash the market is still recovering and it will be a couple of years before you get to reasonable prices. So you can go a very long time before unsustainable growth will collapse. This leads to a very, very long time for recovery.
I live in Japan. It is 2016. The market still has not recovered from 1992. If the world ever gets into an energy crunch, I think we might well look at the last 50 years or so as being a "bubble".
How does a house gain value? You can renovate it (real growth), or you can hold on to it and hope that someone will pay more for it. People don't think about it, but houses are relatively liquid assets. Let's pretend they are tulips, just for fun.
Imagine that you bought some tulips and just by hanging on to them for a while, you can realise a profit. This would be cool because everyone could put all their spare money into tulips and then turn around and sell them for a profit. Because the price of tulips keep going up (and people want to spend some of their gains on other things), eventually people will be able to buy less and less of them. However we might be able to raise salaries so that people can afford these tulips endlessly. In this way the inflation rate will exactly match the increase in price in tulips.
If we can't raise salaries to match the increase in the price of tulips, eventually people will be priced out of the tulip market and demand will dip. This will cause the price to fall. If people start to think, "Hey wait a minute. I'm not guaranteed to make a profit with these tulips after all", the price can fall a lot. If people start realising that they need to take a loss on their tulips so that they can afford to eat today, the price can tumble. How far can it fall? Mostly it depends on how clever people were for keeping the tulip bubble going. The more clever they were, the worse the potential fall. Essentially, it is likely to fall to the point at which the price of tulips escaped from inflation -- because it is a liquid asset and the need for tulips hasn't increased substantially over that time period.
Demand can influence the price of houses (and obviously did in Flint), but the degree to which the market dropped was a result of how overcooked the housing market was. Beware. Flint was never as overcooked as some markets are and people were never as clever about keeping the values high as some markets are.
Can a bubble last 10 years or more and then wipe out all of those gains? Absolutely. I only picked Flint because young people are likely to have heard of the problems there. You could also look at the housing market in London in 1991/1992.
Can the tech bubble burst and wipe out 10 years of gains? Sure. No problem. That's the only way I could interpret the person's question, "Can a bubble that has lasted 10 years still be called a bubble?" Definitely.
To be more mathematical, your property is the house plus the land under it.
People will not pay more for the house than replacement value. If you keep it in good order, you can keep that value up.
The land can't be `replaced'. So for pricing we look at the whole future income stream discounted to today's dollars at some appropriate interest rates.
That income stream is, yes, basically what other people are willing to pay to use that piece of land.
What people can afford to pay for rent is basically what's left over after they paid other things. You can see it as an auction. That's why land values in silicon valley are so high. (Exacerbated by the fact that local regulation there makes it almost impossible to substitute capital for land, ie you can't build up.)
But it's also very important to understand that there is a ceiling. There will be a point at which Silicon Valley startups will stop increasing salaries. People will no longer be able to buy a house. Demand will drop and so will prices. If this occurs at the same time interest rates rise, people will not be able to afford to renew their mortgage and the house of cards will tumble. If the prices are really high and nobody has paid off any of the capital on their properties (as in London in 1991/92 and Tokyo where people had multi-generational mortgages), people will not be able to afford to sell because they owe more than they can sell the house for. But they will be forced to sell because they can't afford the new mortgage. There will be a rash of personal bankruptcies and unless someone steps in, very, very nasty things will happen. In London, the Japanese bought up the land (ironically just before their bubble burst). In Tokyo the government stepped in.
I don't know when, but everything is lined up "nicely". Ridiculously low interest rates, sky high prices, insane salaries. Even if SV companies move to a cheaper location to save on salaries it could trigger the collapse. Seriously not looking forward to a time when the fed raises interest rates to protect a falling dollar... Etc.
That's why I am in favour of taxing land values (as a proxy for unearned land rent), and the central bank targeting nominal GDP levels.
The former policy dampens land price bubbles and raises taxes in the most economically efficient way possible; the latter avoids real shocks in one part of the economy taking the whole house of cards down.
Ideally, no single company would then be too big to fail.
But the term bubble, at least when used by the media, also seems to have a connotation of bursting in the near future. If someone told me tech was in a bubble, but the pop wouldn't be for another century, I would not define it as a bubble. Even if the future pop was enormous.
What if the century long bubble concluded with a pop that resulted in total economic collapse? I'm not suggesting that is likely, just that the defining characteristic of a bubble seems to be the magnitude of the fallout after the pop, not the span of time leading up to the pop.
Investors, especially those of public companies, are known to be short sighted. Typical investors would never call it a "bubble" if they felt the pop wasn't for another decade, let alone a century.
Perhaps both the magnitude and the time leading up to it are of equal importance.
It's probably better to think of bubbles as the accumulation of unsustainable behavior.
Obviously we aren't able to predict a few months into the future, let alone a hundred years, so it's hard to definitively say whether current behavior is sustainable for a hundred years or not.
It's much more reasonable/believable to say that current behavior is unsustainable for 1, 5, or 10 years.
Which brings up the interesting problem that, in theory, we can never be sure it is or is not a bubble unless we look at the behavior in the limit as t -> infinity. One problem with gauging things in the universe (or in the economic sense, the fundamentals in order to value something) is that we will likely never have the tools to do it in the "real" sense.
It hasn't lasted ten years. The last one ended with the great recession, and was of course never a bubble of the scale of the dotcom bubble. This latest semi-bubble (ie extremely elevated valuations) - caused solely by the Fed's hyper low interest rate policies pushing up all asset prices - is far more similar to 2005-2007 than 1999. The pre great recession semi-bubble in tech was also caused by asset inflation from bad Fed policy mistakes.
It's also why this latest bubble / not-bubble was popped by the first Fed moves toward hiking rates. All the panic around unicorn blood in the street started exactly in line with the Fed's moves to hike rates (nice coincidence eh). And it's also why the stock market has struggled to move higher since the Fed's QE program ended (sideways for ~19 months now). If the Fed hikes rates (which they won't in any meaningful way), it'll continue to deflate all elevated asset prices.
one could argue there was a kind of bubble of the American middle/working-class from say 1945 through the 80's/90's. and that this bubble has been deflating since, through a combination of Mexican labor immigration (both legal and non), off-shoring of jobs to China/India/etc, and the increasing automation of software and hardware whose benefits disproportionately flow towards the capitalists and the highly technical specialists like programmers. That would be a kind of bubble which lasted a half century. Period where that segment of American was "over-valued" relative to otherwise comparable people who happened to be born in other countries around the world.
But by that logic if global warming throws us back into a pre-industrial age, we could call the entire period from the industrial revolution until now a bubble. Or we could go even bigger and say if all of humanity happens to die out due to some self-created catastrophe, humanity was the bubble.
That was the whole point of day trading. You hold something that's going up because it's going up, with no consideration of the underlying value. And you try to be the first one out the door when the party's over.
I know nothing about the day trading culture, but do you see a lot of addicted/problem gamblers in that space? I imagine for the good ones it's a bit like a casino, but you've also got an edge based on whatever information you have available.
More than 50% (I think 60% if still the same) of investment money isn't people trading stocks. It's 401k plans and other retirement and investment vehicles. People with money just want to try and earn money on that money. Many with 401k plans and stock options can't even really trade. The second fear kicks in the market it will fall as always does. I just realized something interesting.
1988 - housing market bubble S&L scandal etc. market crashed.
1998-1999 - dot com bubble burst.
2008 - Housing and lending crashes economy.
Seems like the most major events in the markets crashing have been coming every ten years or so. Markets crash and it's called a bubble after but, it's all fueled by media events, fear and then panic selling.
More than 50% (I think 60% if still the same) of investment money isn't people trading stocks. It's 401k plans and other retirement and investment vehicles.
Those people typically aren't investing in startups
They report $4.2 billion in tech start-up stocks purchased by mutual funds. The total amount of money in mutual funds in the US has increased by an average of $500 billion dollars per year for the past 15 years.
At that rate, tech start-up stocks will never even make up 1% of the fund.
I'm guessing for the VC and wealthy, it is the "house money effect" If you made $100M on your first company, you can afford to risk $10M hear and there.
If the intended insinuation of this essay is that somehow there aren't a bunch of seriously over-valued companies out there, or that there isn't a long-overdue downturn on the way, then I'm afraid I can't bring myself to agree.
People young enough to have never been through a downturn in their professional career are usually in denial right up until the moment it happens. And the people who try to call the bubble early, as funny as it may be to make fun of them as is being done here, are usually the ones who have been through it before, see it coming early, and try to warn everyone, even though no one ever listens (too busy enjoying the party!)
>And the people who try to call the bubble early, as funny as it may be to make fun of them as is being done here, are usually the ones who have been through it before, see it coming early, and try to warn everyone, even though no one ever listens (too busy enjoying the party!)
First, someone is always "calling the bubble". At the bottom of the housing market there were people screaming that it was going to keep dropping. People have been calling the tech market a bubble for literally decades. And conversely, there are always people claiming that we're nowhere near the top, even when we are. It's not useful to listen because the reality is that no one really knows. If you think we're the top of a bubble, then cash out and be happy with your superiority.
Second, what are you, as an employee, going to do if you think the tech bubble is going to pop? Sure, you should be saving, but you should do that anyway. You shouldn't be over invested in tech, but that's also always true. What meaningful steps should you take if you believe a tech bubble is about to pop that you should not take anyway?
Isn't it common in SV to accept jobs paying lower than market value in exchange for equity? Presumably, if one thinks the bubble is about to pop, they should avoid those jobs in detriment to offers from "safer" big companies.
I think this is probably in the list of "think you (shouldn't) do anyway". If you're a normal employee with a small amount of equity, the reality is that you are overwhelmingly likely to not cash in big even in the event of a successful exit. If you're being paid in large part with equity, then you're probably being underpaid, not a great decision in any market.
But you're right that knowing a bubble is about to pop might certainly dissuade many people from entering this kind of risky, lopsided employment deal.
That's what happened to me. I got into a very good position in my career.. and then it crashed. I'm more skilled than I've ever been, but finding work that matches my (broad) skillset is almost impossible because I'm either over qualified, or the job is far too specific. It's very strange to experience, so I've been working on freelance work for the past 6 months now.
Year-ago-me wouldn't have believed it. Bubbles suck, and the current tech industry reminds me of my own experiences - Pop.
Sure - I work mostly in finance with linux/devops/app support/programming experience. I becm senior linux admin position by the time I was 27 after some very interesting work at some HFT companies. Low latency tuning, monitoring, resolved many outages, etc. At one point, the owner of an HFT company came up to me and asked me to fix the latency issues that were causing the company to fail, which I did in a couple days. Problem was, I never really got any chance to learn the core linux tools like bind, etc since they weren't really ever relevant. So, when I got a position at a traditional linux shop without knowing the core utilities, I was viewed as completely inexperienced and nobody really took me seriously. It was very strange to go from being treated as a rockstar generalist to go to the opposite. The company decided my experience wasn't really valid and moved me from the linux team to the devops team after I did a user audit for a subpoena by FINRA really, really well well. That role ended up just meaning "troubleshoot why X trader's trade didn't receive Y price." all day, which wasn't what I was hired to do. Instead of doing that, I wrote a bunch of tools to interface with the infrastructure. Emails explaining the tools were entirely ignored and even made fun of, so I left. On my last day, I demoed a tool I wrote that dynamically built json output for all application environments which was loved, despite it being ignored 10 times in the past. Lesson there was that presentation is often significantly more important than the work itself.
When I tried to get a new position later on, everybody was expecting cloud and web development experience, which is experience I don't have. Insistence that it was within reason to learn cloud utilities never worked, even with experience building tools to build vmware instances in bulk. For the positions that I was qualified for, I found myself having more knowledge than the interviewers, so I gave off an unintentional arrogant vibe. For example for a job I was really interested in, I got dinged for my answer to the question, "How do you print all open sockets?" for answering "lsof -i". Apparently netstat was the only acceptable answer. That sort of thing happens all the time, and interviewers do NOT like to be corrected - the number of senior admins who don't know how file handles work is asinine.
It got very, very tiring very quickly and I just kind of gave up. I'm now working in building up investigative journalist and data analysis experience to get out of the linux field. It's going pretty well, but there's little money in it so far. If that doesn't work, a few interesting positions in infrastructure security are in the pipe.
Thanks for the answer! Interesting to hear what you're doing now, as it's something I've been eyeing myself. Aside from money, do you find interesting opportunities/problems to look into?
(one recent little example of what made me think of this was the scene in the documentary Spotlight where the journalist analyze volumes of data on priests' assignments and whatnot - all by hand. I couldn't help but think it'd be so much easier to OCR the pages and analyze the data with some basic scripting.)
-Sued the mayor of Chicago for his phone records and won. Still working on it, but I met up with a journalist to discuss last Monday.
-Doing HFT systems tuning as freelance (pays the bills, too).
-Submitted a major infrastructure bug to comcast. Talked to their CISO and everything.
-Did the same for Northwestern, but with less followthrough.
-Learned a bit of R, significantly improved my python, did a bunch of random silly projects.
-Made a proof of concept for a domestic violence shelter finder for a hackathon. Just handed off the code to a few junior coders to ride with.
-Made a minecraft 3d printer print a png mural by pulling from github in-game. Limited myself to only using textures in the game without color transformations. Became a really hard problem, since the 'pixels' used by the printer don't move. Learned more than I'd thought from that project.
Over the last 16 years we've seen several boom/bust cycles in speculative markets driven by interest rates.
First the bursting of the first tech bubble. Then Greenspan's housing bubble in 2001-2007. Then interest rates were held abornmally low, for 80 months straight, which is something that the world has _never_ seen.
Would we have seen this tech boom if interest rates had been say 5% and capital had somewhere else to flow?
I'm pretty wary of "The music hasn't stopped playing, so it can't possibly be a bubble" arguments. Lets watch what happens as rates go up and venture backed tech has to compete with other returns.
Those aged 65 and up control most of the investment capital in the United States. This is not a risk-taking demographic regardless if the capital is family money or managed money. It is a demographic that wants to preserve capital in exchange for modest returns.
The same can be said for pension plans who formerly invested heavily in alternative investments, and who now must ensure fund stability as pension payouts peak in the coming years.
Foreign investors and sovereign funds are under increased pressure to keep foreign currency at home, particularly in China and Russia.
Interest rates are poised to rise, held back by a US Federal Reserve loaded, cocked and ready to fire; thereby increasing VC carrying costs.
The global political environment is not favorable for economic investment. Highly publicized bellicose rhetoric and outright conflict is pervasive. Investors loathe the uncertainty and anxiety this creates.
So, this time its different
I suspect there may be strong returns to be had in M&A, particularly after Microsoft's aggressive bid for LinkedIN. I note even Twitter is performing well today*. I imagine there may still be strong IPO's, like Twilio seems positioned to be. But, I believe we're entering a less liquid and lower alpha period in investing.
I can't say I have special knowledge on the topic, other than being a close observer.
> One analyst predicts Facebook will easily be worth $200 billion by 2015. Right on! And by 2020 it could be the first company with a $1 zillion market value, so buy-buy-buy, everybody!
What's funny about the quoted article (http://www.thedailybeast.com/articles/2010/12/17/facebooks-5...) is that of the 7 companies the blogger mentions in that list, only 2 are currently valued above those 2010 valuations - Facebook at 6x and Twitter at 3x.
GroupOn is at 0.3x, Foursquare and Quora are zombies and it's unclear what's going on with Bonobos or Lunatik.
Well, that is the problem with people predicting the future: they may be correct on fundamentals but the world is a chaotic place and predicting just when something will happen, even if it is likely to happen in the future, is a bad bet.
I personally believe that the current economic regime, requiring constant growth (and large growth) for health is not sustainable. Am I willing to bet on when the next big economic crash will occur? No.
So at the moment, today, tech industry isn't dead / crashed . So we can find people who said that it will and point at them that they were wrong. And if the crash comes tomorrow, are we going to say 'well, it was predicted soooo', do the usual post-fact rationalization on how obvious it was, etc.
But so what? We can do exactly this for any prediction whatsoever. Wars, financial crashes, economical and political events, etc. People, from cab drivers to executives and ministers, make wrong predictions all the time.
I honestly don't see the point of it, other than highlight that someone was wrong and... feel good about yourself that you were on the winning side this time?
Should we stop predicting? Yeah, probably. But the ending 'And now Trump thinks we’re in a tech bubble too, so maybe it’s true.' doesn't really deliver this message.
One difference between a bubble and a declining market segment is that the bubble bursts -- abruptly.
So it doesn't matter whether people repeat prophecies or doom for a long time or not -- unless it's actually a bubble, it won't ever burst. At worse it will start declining slowly.
That's why the arguments like "it hasn't burst all those years so it's not a bubble" don't get it either.
Being a bubble is not something that has to do with duration (whether it lasts for a long time or not) -- it has to do with the non-linear effects of the burst.
Of course it the burst never comes, or it's instead some gradual decline, then it's not a bubble.
So you're telling me you can only tell if it isn't a bubble if the market steadily declines eventually? Also how much should it steadily decline by before we're sure it's not some local decline phenomenon unrelated to the bubble?
Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state. Saying "We're in a bubble" really just means colloquially "I think this market segment is overvalued", probably not much more than that.
>So you're telling me you can only tell if it isn't a bubble if the market steadily declines eventually?
No, that's just its defining characteristic. You can "tell" by other signs too -- but they could be misleading.
>Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state.
That's the case with every phenomenon that depends in the final result for its definition. E.g. is an act X "beneficial"? We might have some heuristics, but we can only certainly know from its effects after it is completed.
The Microsoft LinkedIn acquisition seems to have positively signaled investor confidence, in spite of calls that the sky is falling. Whatever odds there were for a "bubble burst" are probably lessened by this purchase.
That's true. Even during the dotcom bubble, internet incumbents used their high valuations to leverage questionable acquisitions. Yahoo's purchase of Broadcast.com for over $5B being the most notable example.
The only real indication that we are in a bubble is the frailty of the future of digital advertising. I don't think there are many hypervalued hardware firms. Advertising hinges on corporate and consumer purchasing power which seems to be healthy if slightly waning, and to a certain extent the personal tolerance of ads and highly abundant Web content. Outside of the US the appetite for both continues to grow year over year. While display on publisher sites has many weak spots, search and social ads a solid footing on most advertiser's budgets. They won't dissappear overnight. What will?
This post suffers from confirmation bias which feels weird coming from a writer whose entire accelerator is founded on principles which exploit other peoples' biases (e.g. others are biased toward teams with traditional credentials whereas YC evaluates more on accomplishments and building things)
The thing is that the nature of speculation is to generate bubbles. Every financial market is a bubble, financial products are always overvalued (relatively to their current earnings) because people believe they will be worth even more in the future. The real question that needs to be answered is: when will the bubble pop? AFAIK there's no scientific way to answer that question.
Yes and no. Speculation creates bubbles when people overestimate but not when they underestimate.
Financial products are definitely not always overvalued either. Accounting was created so that we can properly evaluate what a company's overall value discounted for future earnings and they are pretty accurate (accounting was never my favorite subject so that can probably be better defined)
Just to be contrarian, if you were to say "we're in a HIV-cure-research bubble!", and it never happened until a reliable cure was found, thereby simultaneously making huge amounts of money and forcing every business to pivot, you'd be wrong.
It seems like it was just yesterday that everyone was arguing the Facebook valuation from Microsoft's investment was impossible to ever live up to.
$15 billion. They'll do half that in net income in the next four quarters.
Interestingly the $125 per user figure quoted on the Gigaom article (the $15 billion valuation divided by their daily actives or total users at the time), is now more like $195 per user (1.68 billion daily actives with $328b market cap).
Whatever this is, it isn't a repeat of the late 90s. The term "bubble" doesn't even mean anything except that alot of people, many of whom aren't even investing or selling short, assume that the prices are way higher than they should be.
The 90s was a typical gold-rush type of scenario where no one knew what anything was worth, and so investment continued until someone figured out that there was no one everyone could make money even if the entire mountain was made of gold and started betting against the herd.
Going by the cyclical pattern, we're overdue for a recession in the U.S. However, no one knows how severe it could be, especially considering that the "recovery" from the '08 meltdown was tepid at best.
As far as tech investing goes, the best way to make money is to back a number of good looking horses and hope the wins pay for the losses. Which is the same as it always was. If you're smart, you'll also diversify in case something does happen to cause the entire industry to take a dive. However, short of a major quake taking down most of SV, the number of different ways businesses are trying to make money means that, IMO, it's more difficult for one event to take them all down, unlike 1999.
Anecdotal, personal, and completely my opinion, but my parent's entire life savings is $750,000. That's about how much Mike Markkula invested in early Apple ($250,000 in 1977 dollars adjusted for inflation). I like this figure because it represents a serious amount of money - you could retire off of it, if you're frugal. So why take the risk of investing such a large sum in a startup?
I presume that the objective of investors (who have much more money that $750K) is to either to a) make money or b) make money and bring a new technology/innovation to market. In a bubble I see more of the former (focus on money) without the innovation piece. How many car sharing (Uber/Lyft/Sidecar), food-delivery (GrubHub/OrderAhead/DoorDash), and credit card alternatives (Venmo/Coin/Stratos) do we really need? Would the founders of such companies put their retirement savings into starting these companies? Maybe, maybe not.
Innovation is key to keeping a bubble at bay. Y combinator has quite a few companies where the goal is to make money through innovation. These are ventures dedicated to biomedical research (DNA sequencing/Gene Mapping), novel algorithm development (AI/Machine Learning), improving social welfare (Water Filtration/Education), etc. I'd be happy to see a world full of these, and I wouldn't call it a bubble. It would be people pursuing ideas that could solve real problems in the world. Ideas that are worth investing your (and therefore an investor's) money.
I believe that innovative companies keep a bubble at bay precisely because they are less likely to succeed. Investors must faithfully evaluate innovative companies to see if their technology is feasible and if the market is ready.
The difference here is that if you're near retirement age and that's all of your money investing it all in a start-up is the worst possible thing you could do with it given the stats.
I have a hard time understanding precisely what gives these companies such high perceived values.
In the end I have to believe people are measuring the value based almost exclusively on the website's "traction". Frankly, I think "traction" is an outdated metric (especially when it comes to the web).
I almost feel like I have to remind folks here (who are arguing against the premise that we're in the middle of a period of extraordinarily excessive valuations) that the web provides an almost frictionless environment to change. If tomorrow someone launches a better LinkedIn, there is ZERO reason I can't switch over (or use both) that same day).
In tomorrow's world I see individual engineers (or surely teams of less than 10) will have the capacity to build a product better than LinkedIn, at and beyond the scale of LinkedIn, in their garage (thanks to the cloud). With little to no investment.
In the future (by my estimation the not-too-distant future) $20+ billion for a resume website will be unconscionable (if it isn't already).
The strangest thing to me is how upset this makes people, even though it doesn't affect them, at least not directly. Look at the quote about Facebook's valuation- who gets so upset about that?
Why is it an affront to you if some business guys can figure out a way to call FB worth $33B? Of course now nobody would question that, because they're one of only two games in town when it comes to advertising. But even before that, why get so pissy? If the valuation is sooo crazy then bet against it. Why get so upset that LinkedIn sold for $26B? If you think MS wasted their money then let them waste it.
Why be so concerned that VCs are making bad bets? Let them! Are you a limited partner? Then who cares?!
I get that people don't like the knock-on effects, rent goes up, engineers are harder to hire. But I don't see why anyone should give a shit if a dumb VC wasted their firm's money on a dumb idea.
The VC is not wasting his own money but some people's pension fund money. In addition they distort the market to make it difficult for regular companies to compete with companies that run on investors' money instead of profits.
the fact that there are very few tech ipos is probably the best indication that there is a bubble in common stock valuations of private companies, which would not be supported by public markets. Why? because public markets have many sophisticated players who can easily sell short and private markets don't.
I don't think the bubble thing is true for our time, nor it will be in the near future, it's just tech has become more competitive than ever. I am too young to know exactly the circumstance surrounding the last .dot com bubble when did it happen ... but I guess, it could have happened, the VC had not seen the full potential of the internet back then...
I can't buy the notion, that we will or ever see a bubble ... it's just ups and lows just about anything in life ... because at this point and in future internet is too larger to be vulnerable to it.
But that said, there is a little room left, for developers living in the mom's basement., and that's truly sad.
> I don't think the bubble thing is true for our time, nor it will be in the near future, it's just tech has become more competitive than ever.
No disrespect meant, but this kind of thinking is exactly how bubbles happen and everything gets out of kilter. Like people who believe house prices will go up forever, so they leverage up - it's irrational exuberance (to quote Alan Greenspan). But eventually this imaginary money that people believed to exist, actually didn't, because the human beings that needed to work N hours to produce that wealth haven't actually been alive long enough to do it. And boom, it all resets.
I actually think one of the key tells for being in a bubble is so many people denying we're in a bubble. The talk of it alone is enough to spread fear and doubt. That moves markets. All that is needed is an 'event' that confirms the fears, and boom. It could well be a failed IPO.
Who knows? Not I. I was one of the idiots that bought lastminute.com shares.
Where are you making that point? I don't see it, what I see are a number of comments denying that a) we're in a bubble, b) we'll ever be in a bubble, because Internet.
> I don't think the bubble thing is true for our time
> nor it will be in the near future, it's just tech has become more competitive than ever
> I can't buy the notion, that we will or ever see a bubble
> because at this point and in future internet is too larger to be vulnerable to it.
Hilarious article. The fact that Silicon Valley VCs can make money out of extremely overpriced companies doesn't make them right. It's just an arrogant read this time. Mr Sam - you should be ashamed.
As other comments point out, whether there is a bubble (extreme overvaluation) or not depends in part on the financial background. If you just look at interest rates, they tell us that the future will be stable, the world is awash in capital, and you'll have decades to extract the value of your investment. For example, the $247 per LNKD user could be reasonable, notwithstanding that only around 1/4 of these users reportedly are active. So over 20 years, getting about a dollar a month per user will break even. And this is just one aspect, since global growth trends and unlocking network effects offer more value. But these metrics don't give the whole story. The central banking infrastructure pumps capital into the world due to deflationary fears, so can we really trust interest rates and assumptions of stability and growth trends to determine whether the value of unicorns is enduring?
An interesting aspect is Altman's position, argued by citing "they were wrong time and time again" data points. His day job is to create new ventures, some of which will presumably disrupt existing giants and lower their value. This dynamic is dangerous to the assumption of stability in organizational trends upon which value metrics are based. In some sense, there is overvaluation (because new opportunities are undervalued), if not a bubble.
One of my most memorable "bubble talk" moments was when I was living in South Florida. To clarify, that's only to say it's easy for me to recall given the unique circumstances of the conversation, not that it was particularly enjoyable for anyone involved.
A bunch of my co-workers and I were out to lunch with a new member of our team (management level). The conversation turned to the real estate boom that we were in the middle of. The new guy had already, during the conversation, let us all know he had made a nice chunk of change in real estate recently, and was in the middle of looking for a new house with his wife. They apparently had their eye on a few really nice waterfront properties. That sort of got a few folks talking "bubble". He laughed it off and smugly told us all that (paraphrased) "in reality the market is just going to keep going up."
Famous last words, he ended up closing a few months before the crash.
Markets can stay irrational for longer than you can remain solvent. Just because the bubble hasn't burst, doesn't mean we are not in one. Of course the converse is also true, just because the market has been going up doesn't mean it will go down. It will be interesting to see what happens if the Fed ever raises the interest rates.
the internet boom (and I mean boom not bubble) started to flicker in 94, gathered steam in 95, and really got going by 96. Saying that was the time to bail out, before 97 98 or 99? I would not say that Greenspan "called" it.
bubbles are caused by collective overinvestment; that means that a lot of the ideas can be good ideas: if everybody else also doesn't invest in them at the same time. It's a bit of tragedy of the commons, it's the collective knowledge that's lacking in individual decisions.
I don't think the bubble is just going to "burst". I think the rapid growth in technology is real. The market may correct itself some, like it is right now (particularly with investors), but I don't think there is going to be a great tech apocalypse.
The 2008 bubble was caused by fraud, what is the current bubble caused by? Most people are saying we are in a bubble because all of these companies that are making 0 dollars are worth extremely large amounts of money. Everybody is aware that these companies aren't making money however and still believe the company is worth an insane amount of money.
If everyone is willfully deluding themselves and see nothing wrong with it, for what reason do we believe that it will change in the future and that the bubble will pop? And the current situation is different from the 2008 crash in that people know what they are buying into, companies that don't make money, and they don't care.
When valuation changes cause widespread insolvency, imo.
That was possible in 2008 because household debt levels combined with the subprime scams create underwater households that could no longer keep up with payments.
Who would become insolvent when tech stock valuations change?
As the rate of innovation continues to increase exponentially, these so called "bubbles" will only grow bigger. The future will have A LOT MORE companies valued at 1000x revenue, not less. Think about all the new industries poised to exist just in the next decade: A.R. V.R. A.I., Bionics, Space, etc etc. Exciting times we're living in.
The truth is things probably have been overvalued for while. Bubbles pop when enough people fear and start to sell. A good article on this should create a graph of how many articles over time have been jumping on the tech bubble bandwagon. Anecdotally I've noticed a massive increase in the past few months by more respected business people.
If we're not in a bubble, we have very serious structural economic and social problems created by the tech industry that we need to solve. The (supposedly sustainable) rising tide is mostly drowning people, and if no reprieve in the form of a crash is coming, we need another solution.
Most real estate agents, mortgage brokers, and building contractors couldn't see the real estate bubble either. It's hard to see a bubble when you're inside of it.
The tech bubble may very well outlast the US dollar bubble.
Valuations have been questionable but that alone does not mean we are in a bubble. I'd rather we looked at the amount of funding that has been raised and the amount loss to gauge whether we're in a bubble.
Sam HAS to play down the fact that we are in a tech bubble. He is, after all, a venture capitalist, so do note the conflict of interest here.
My friend referred me to this Bill Gurley article [1]. My metric for whether there is another bubble is not so sophisticated. I feel that there is a bubble when celebrities (like sports personalities) begin investing in questionable startups [2][3]. Harkens back to the '99 bubble.
Edit: Before you bring up Ashton Kutcher, a single data point does not a trend make. But yes, we've been in a bubble long before he began investing actually.
But perhaps we are too eager to discredit celebrity investors. Anyone can take the time to learn and research and then make investments. Of course, different investors still might invest in different companies, and they don't always pay out. Anecdotally, I would provide Ashton Kutcher's portfolio[0] as evidence for my case, as he has made some successful tech investments.
Not only that, but he's been killing it. Ashton Kutcher's been able to get himself access to some of the next big tech companies include Uber and Airbnb. According to this article[1], he 8.5x a 30 million dollar fund in 6 years (I am aware a lot of the gains are paper gains). But that's still incredibly better compared to the average VC that returns between 1-2x.
I'd like to further add that there has been a spate of large corporates scrambling to cash into the gold rush by creating large funds to invest in startups [1].
Only if they are late-stage investors. SamA specialises in being early, as do most of the other valley venturati. If you are a first-round investor, there is only downside in the bubble bursting.
There might not be a bubble in tech, but China is absolutely scaring me right now. If those Chinese bubbles pop, it might shake investor confidence in other sectors as well (e.g. tech).
I think there's a case to be made that bubbles result in malinvestment, that is, you end up building capability to produce goods and services for which there isn't enough demand to support that capability. It's inefficient.
When a bubble bursts we collectively look around and think "What is it that we really need?"
Note that overleveraged companies tend to outcompete more conservative ones in the short term, they just have more weight to throw. And if enough of them go down at the same time, the resulting slump won't do decent investors any good either.
What the hell is Sam talking about? Quoting people from 2007-2008 saying we were in a bubble then as if nothing was wrong at the time? 2008/2009 was only partly insane because of tech, but it was an INSANE time: VCs were too scared to ask their LPs for cash because they knew the capital calls would fall short. Dealflow utterly halted for 6 months, and took another year after that to get back to something that felt productive. We were absolutely in a bubble then.
Using bubble-quotes from that era as evidence that we're not in a bubble now is absolutely preposterous.
> 2008/2009 was only partly insane because of tech,
Its easy to provide all kinds of justification in hindsight or "after the crash". If you were a "happy investor" sitting on top of January 2008 crash, I bet the last thing in your mind will be "someone is insane". Its only because the crash happened just after that and so now you have the liberty to say "INSANE TIME".
Its the same economic cycle happening right now. I don't know when the DOW/NASDAQ is going to crash and how many points, but I do know that almost no one can anticipate it right on top of the price chart, and say "Hey look, this move will now cause an economic recession". It always happens after the fact!
Everyone who says we are in a bubble should come up with a systematically better way to allocate capital.
Otherwise: shut up and fuck off.
Because for all the hullaballoo about poor allocation in X or Y [Combinator] or Z company being correct, the broader premise, that the market is working out good things to do with money, is clearly somewhat proven by Silicon Valley's last decade of spend: cheap, connected, actually smart smartphones; electric cars becoming affordable; affordable re-useable rockets. All of which are vastly humanly benign, as well as good ways to make money (not all of which do, but some do, i.e. phones).
It's already been done, you're just too vehemently guarding your non-point to admit it. IPO. If these ridiculously over-valued companies ever went public, as stated MANY times in this discussion, they would get REALISTIC VALUATIONS, and come crashing back to earth quick, fast, and in a hurry. Companies are actively SCARED to IPO now, as it almost always means lower valuations once they have to prove feasibility, rather than convince rich people dumber than they to pony up the money. So how about come up with a cogent argument or GTFO?
-Also, good things with money? One words. THERANOS.
After Twilio filed for IPO, someone wrote a "here's what Hacker News said about Twilio," which only focused on the hilarious-in-hindsight but negative comments about the startup (https://news.ycombinator.com/item?id=11786464). Naturally, it got massive retweets from venture capitalists who espouse the haters-gonna-hate attitude.
As dang notes in that other comment thread, this kind of argument doesn't look at the other side at all: there have been some seriously shady dealings going on with unicorn startups. IPOs are failing. And let's not get started on Theranos.