bet 2 - I have not done the calculation, but just stripe puts it way beyond the 27 bn figgure.
bet 3 - plenty of good companies in that batch. Razorpay was valued at half a billion dollars in last round. Overall seems like he was right. https://www.ycdb.co/batch/w15
He starts out: "The massive experiment in using capital as a moat to build startups into sustainable businesses has now played out and we can call it a failure for the most part."
That slice of startup-land is always what felt most bubbly to me, WeWork being the biggest example, where even SoftBank admits losses of something like $9 billion. In contrast, Bubble 1.0's biggest loser was WebVan, at $1.2 billion.
(And as a side note to some of the discussion: that there are successes this time around doesn't prove it's not a bubble. E.g., Amazon and Google made it through, but it was still a bubble back then.)
The issue is that the value of money has been decreasing each year for the last decade. I don't remember anyone predicting that this was going to happen as far back as 2010, although it was already obvious that it was happening by 2013 or so.
That's why you'd be hard pressed to name a single VC-funded tech startup that was founded within the last five years, because these days VCs are just funding small businesses and not startups.
They are far from $200bln, so he certainly lost the first one. Might have won the other 3 though.
Whatever is to come with e.g. the decreased interest in the public markets for loss-making companies with no apparent path to profitability, the last 10 years have apparently not been a bubble for any reasonable definition of the term.
Investing into startups and unicorns should provide significant yield over diversified and less risky investment. Getting the same result from taking more risk is not a good investment.
from the end of March 30, 2015
+56% SP500 Price index
+70% SP500 Total return index
+83% Nasdaq price index
Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX doubling their valuations would give only +3.2% annualized return over Nasdaq. I don't see the risk/reward ratio of a good investment if the price just doubles in that period.
(FAANG is another good comparison).
I am sure all investors who put money in these companies when they were risky, made very good returns, far more than SP500.
* plan is to forego profits to gain market share, negative earnings
* free cash flow is negative
* lots of debt.
Dropbox -40%, Uber -28%, Pinterest -23% since the IPO.
It gives us something to measure and review. It also adds/removes credibility when we read another article with his analysis.
Which hasn't happened...
There was another thread about bubble and calling me out. Just to point out, If you bought S&P Index in 2015 you would now have roughly 200% return.
But this is in the context of tech. We forget Apple, Microsoft, Google are not just doing fine, they are doing great. And not just in US, TSMC and Samsung representing SemiConductor industry are all doing great, thanks to those ridiculous profits from NAND and DRAM; Samsung is reinvesting everything into making DRAM NAND and Foundry more competitive. Which will hopefully fence off those State sponsored Chinese Competition.
In terms of Startup, While Sam might have loss on first proposition ( I think he won the other 2 ), but they are operating just fine with similar valuation if not more, just not meeting the 200B target. Unlike other Startup that cashes in from IPO and then devalued into nothing.
Will we see a correction? Very likely. Are we in a bubble? No, at least not yet. ( Unless you like to redefine any correction as bubble burst )
I agree with everything you said except for this. Not because I am definitively saying we are in a bubble, but just pointing out it's impossible to know if we are. Very few people saw the last financial collapse coming.
That is a simple chart of recent 30 Yrs S&P 500 P/E.
> Very few people saw the last financial collapse coming
While media points the last financial collapse blame to CDOs, the fundamentals of it was housing prices. May be it is new to many Americans, but for those who have lived and seen through Japan, South Korea, Hong Kong housing prices collapses in the 90s, it was rather obvious. I remember the moment when I mention it in 2005 and 2006, but no one believe market would collapse, the idea of housing prices would fall was literally unheard of.
Now there are concerns of Cooperate Debt reaches new height, which is often the argument of bubble. The trouble is you cant look at cooperate debt alone and judge it. Amazon is 25B in debt, but they have 45B in cash. Apple are 100B in debt, but also ~250B cash.
Amazon were issuing at 10 years and yields about 3.2%, for reference US 30 Yr treasuries has been floating at around 2.4 The vast majority of companies are swimming in cash. ( There is less of it now because of buy backs, which is what pushes those stock prices up )
So while the market, and general economy may not be healthy, I argued it isn't in a bubble either.
You're completely missing the point. You can make arguments either way. Hindsight is 20/20. You're making an educated guess based on data which is informative, but it's theoretically impossible to predict a Black Swan event. And even without a Black Swan event, your analysis could be wrong. It's not like all analysts agree on much (if anything) - so how do you decide who's right when nobody has a perfect track record? You're making the best guess you can and I respect your analysis, but I don't assume it's correct.
My point is simple: nobody knows for sure.
>My point is simple: nobody knows for sure.
Absolutely. I am suggesting to those who consistently points to doom's day needs better explanation rather than just debt alone.
Edit: Actually it was my understanding that all bubbles, by definition must have some form or irregularities or speculation. After all that is what bubbles means, turns out when I was going to quote wiki for this reply, I discover there are whole set of economic papers suggesting bubbles completely unrelated to its intrinsic value and economic fundamentals. Will Read those paper when I have time.
It's impossible to foresee an unknown unknown.
The underlying principles of the companies is sound, just priced a bit too high. The market fixed it (as it is supposed to do)
Repriced, adjusted, revaluation. Those seem more appropriate for the timeframe.
More time is needed to tell if it was fixed or not.
Too many pundits make grand but imprecise predictions like "AI will become dominant in the next decade". The book 'Superforcasting' tackles this problem in detail: https://www.amazon.com/Superforecasting-Science-Prediction-P...
EDIT: Ah, I found documentation:
"Michael de la Maza, a Boston-based investor and TechStars mentor, has taken my recent bet on valuations."
I think what we’ve seen in the last five years is that there’s some bubble-like irrationally exuberance but overall it’s far from 2000 all over again. Companies have high valuations but this time also often have financials and growth prospects to go with them.
When will portfolio 1 reach $200B?
Part 2 was an easy win from Stripe alone.
I scanned the YC '15 Winter list and I don't think I recognize any of them. Someone could track it better via Crunchbase, but I rather doubt that he bet correctly there either.
EDIT: Oh, GitLab.
Edited due to ambiguity.
Predicted Aggregate value: $200B
Actual value: $145B (Math in )
His prediction is off by 25%. Technically a lost bet, but I'd say a prudent bet as a VC.
As for #2, #3, he wins them outright. Overall, being 25% off the most optimistic prediction isn't too bad a loss. I'd say he won the argument convincingly.
I will note that anyone above average intellect in his position (as an investor with gobbles of analytics, best in class prediction models and advisors, and access to thousands of high quality pitches to see down the pipeline) would likely predict as he did, so while he won, he wasn't clairvoyant, he was merely following the data.
: Math: Uber: $50B
Is that what shareholders are asking for, right now? Don’t they want fast growth more than they want profits?
But also how much longer can we wait? Google, Apple, Microsoft and Facebook were all turning profit before the IPO! Find the old S-1s if you don't believe me. And back in those days IPOs happened much much earlier.
Everyone should be considering this a bit more because it says something about the irrationality of the current market. Large VC funds were investing under the thesis that some of the current crop of (now) less than impressive unicorns could follow the Amazon model: invest in growth at the expense of net income. These unicorns haven't simply failed to produce positive net income by intentionally following the Amazon model, rather they've simply burned through mountains of cash following less than impressive business models. They never followed the Amazon model to begin with.