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Your post, while insightful, doesn't really provide much reason as to why there seems to be a huge influx currently of high funding rounds for seemingly basic or non-profitible companies, the likes that I have not seen since the 90s. The companies you mentioned, Pandora, Dropbox, and Facebook are probably the exceptions, and don't release financials to my knowledge. It will be interesting to see what Facebook actually makes when they publish numbers next year. Last I heard Groupon started with huge profitability and now is burning way more money then it makes (I also doubt it to be a sustainable biz model).

There is definitely a bubble right now, I've seen average 8-15mil rounds for companies that offer something tangental to a popular service (it's LIKE FourSquare, or it's LIKE Pandora) despite the fact that original services themselves are not necessarily making huge exits. Perhaps it's just that the horizons on the dotcom VC funds are expiring and there are lots of new funds?

I think the answer is a bit more simple than that. Where else should people put their money if not in high tech?

Industrials correlate to GDP, and GDP is projected to be flat. Same goes with consumer products and volatility is too high in media. If you have capital to put to work, Tech appears to have the highest risk/return profile.

Phrased differently: if you had $10mil, where would you put it?

are internet companies still considered high-tech? http://en.wikipedia.org/wiki/High_tech

Phrased differently: if you had $10mil, where would you put it?

25% stocks, 25% bonds, 25% gold, 25% cash?

(That's literally what the "Fail-Safe Investing" book boils down to. http://en.wikipedia.org/wiki/Fail-Safe_Investing)

fail-safe meaning you're ready to lose up to 50% of your investments? cause quite a few things on that list are mutually exclusive...

The author argues that these four types of investments are very unlikely to go down at the same time - if one loses a lot, the other types grow.

    "	It might seem that a Permanent Portfolio
    containing these four contradictory investments would
    be neutralized: As one element rose, another would fall
    and nothing would be gained.
        	On a day-to-day basis, that can be true.
    But over broad periods of time, the winning investments
    add more value to the portfolio than the losing 
    investments take away."
He gives some numbers in the book, from 1970 till 2002 the portfolio lost money only in four years: 6.2% in 1981, 0.7% in 1990, 2.4% in 1994, and 1.0% in 2001. Three of these four years were followed by double-digit gains. The average gain was 9.5% per year.

70-02 period is pretty irrelevant in today's world though. how did such portfolio perform during Great Depression, which is more like what we face today?

Would it have been possible to raise $8m in VC funding for a glorified slideshow during the Great Depression?

I think the author wrote from personal experience, so he could be either too young or not even born yet during Greate Depression.

unfortunately investment advice written from personal experience is pretty useless if not harmful.

"GDP is projected to be flat."

This is utterly absurd and shows a complete misunderstanding of economic growth.

On the contrary, it makes sense. There were a huge influx of liquidities from the central banks around the world, and this money needs to be invested into something. Western GDP is pretty flat now and has been for a while if you don't take into account the various credit bubbles, and will probably stay so for the foreseeable future - as long as oil prices stay over 75$ a barrel at least, which may very well be forever.

Should companies only be highly funded if they are similar to popular companies already making huge exits? Wouldn't this sort of be "missing the train"?

This comment should be upvoted a ton more.

If you're pitching your business as X for Y and X is still a massively unproven startup - you've missed the train.

Work on creating your own X - you want to be the market leader - its the only way to truly win in the consumer web.

Good points. It's hard to say what specific factors are driving the substantial influx in capital. However, I agree with the comment about investment alternatives. Where else can you invest today and expect a significant return? On this point, there might be a bit of resulting froth in the angel and venture capital markets, but I don't think this reflects an industry-wide bubble as what we witnessed in 2000.

Take Facebook as an example. Is Facebook worth $50b, per the recent Goldman Sachs investment? It's possibly worth much more, if we assume that Facebook is the winner-take-all in a network market (social networking). Are there significant uncertainties related to Facebook's revenue model and the company's ability to fend off substitution threats? Yes. But this is consistent with the risk/reward profile that comes with an equity investment in a privately held, high-growth tech company.

Wonderful comment. One of the reasons there has been a huge influx of funding is that there was A LOT of sideline cash in 2008. A lot of the fear has since evaporated, and funding and liquidity has increased, albeit, with some pent up back pressure.

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