I've been wondering recently - a phenomenal amount of money and investor excitement is circling around these few big companies. If it turns out that they are overvalued and the 'bubble' does burst, does this mean there could suddenly be a surplus of capital and investor attention that will spill over into smaller, less well known businesses?
If everyone who is waiting to get their piece of Facebook or Groupon suddenly thinks better of it, could they decide to redirect their money toward smaller interests, increasing the availability of capital for 'the rest of us'?
Eventually, that is the beneficial effect of a bubble bursting. On the downside, the short term of a bubble bursting brings risk aversion and particularly aversion to debt.
I'm in agreement with the linked article that the "valuations" of companies like Facebook and Groupon are facially absurd. Facebook is worth $60 billion? On what planet? Yes, they have a lot of users, but are they monetizing them to the degree necessary to sustain that valuation? Facebook's books are a black box so we may never know, but my strong suspicion is no.
The little mini-bubble going on in some tech startups as well as the bubbles building in asset classes like commodities are the direct result of nearly every nation in the world pursuing the "beggar thy neighbor" (read: currency devaluation) strategy at the same time. The money pouring off the printing presses and/or being borrowed by national governments is heading straight into these types of investments. When that cycle ends, prices are going to drop like a rock.
Back to the original comment, the "boring" or smaller companies being ignored in the frenzy will benefit from that, eventually. But first the damage done by bubble will have to be healed, and that can take awhile.
>could they decide to redirect their money toward smaller interests, increasing the availability of capital for 'the rest of us'?
Probably not. That money is pretty much stuck there, as VC is an illiquid investment. Money invested in Groupon isn't going to get paid back until they have a "liquidity event", like being bought or IPOing, or until you can sell it to another investor. However, it's possible a larger fraction of new VC investments could be targeted at "the rest of us".
Well it's definitely not a one-for-one distribution, but those Groupon dollars do make it around. Our site has Groupon ads popping up almost constantly, and actually tend to yield a higher clickthrough.
Massive injections of capital into Internet businesses do help overall economy of web startups. The danger, like the Yahoo comment earlier, are the spotty business models and expansion that are built on that frothiness. Cause when it goes, it's those startups that crumble first.
The ones that figure out a business model that isn't tied to a flush VC climate should be ok. eBay as I recall, did just fine after the first bubble.
That's what I'm asking. I don't think it's particularly clear cut.
If the people pumping up the value of Facebook are thinking strategically about the tech sector - and see Facebook as the best place in the tech sector to put their money - then perhaps. If they're just opportunistic, looking to make big bucks on a new household name during a time that the old household names aren't doing too well, that's another thing entirely.
If everyone who is waiting to get their piece of Facebook or Groupon suddenly thinks better of it, could they decide to redirect their money toward smaller interests, increasing the availability of capital for 'the rest of us'?