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Poll: Tech Bubble?
224 points by stevenj on Feb 17, 2011 | hide | past | favorite | 198 comments
Cause for concern? Are people overreacting? Perhaps a little bit of both?

*Would love to hear PG's thoughts on this

Yes, we're in a bubble
641 points
Something's going on and it's likely going to have pretty significant (negative) consequences
639 points
Something's going on, but people are overreacting
571 points
No, we're not in a bubble
251 points
I'm not sure
144 points

I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant. If you had money to invest you felt like you had to have most of it in the stock market, because money parked in bonds would miss out on all this growth that was coming.

Back in the 90s I was sure there was a bubble happening, and was notorious for telling everyone to sell. And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either.

What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg.

The question is not whether we're re-living the exact same bubble as in the 90s; the question is: is this A bubble?

The smooth-talkers of today can code: that's great! But maybe it just helps them sell the kool-aid...?

Twitter is apparently doubling in value every few months, although it has yet to figure out a business model: does this sound reasonable?

Startup valuations will go up and down in the future as they have in the past. So they could go down. But it seems very unlikely that anything so dramatic is happening now that people will be calling this "the bubble of 2011" in the future.

Mark Zuckerberg is not a smooth talker who can code. The reason investors are interested in Facebook is their growth.

It makes sense for Twitter's valuation to grow proportionately with its traffic, whatever that is.

What about:

Groupon valued at 15B

Instagram: 7.5M raised, 0 revenue

Foodspotting: 3.7M raised, 0 revenue

Path: 100M offered, 0 revenue

about.me: acquired while in beta

Hipster: not yet launched, rumored to be acquired by Groupon.

Startup investing is not based on revenues, like it would be if you were investing in a part share of a restaurant or something like that. When a startup is valued at $10 million, it doesn't mean that the company, as is, is worth $10 million so much as that it has a 1% chance of one day being worth $1 billion.

The way you make money investing in startups is to make a lot of bets that each have a small chance of paying off big. So while I'm not saying anything about the specific companies you list (most of which I don't know anything about), a list of recent startup fundings should always include a lot (perhaps a majority) that investors will ultimately lose money on.

The problem is, you don't know which the winners will be. They usually tend to look very unpromising. If you'd made this list 5 years ago, it would have included a web site for college students, bizarrely thought to be worth tens of millions of dollars.

Isn't that exactly what a bubble is?

Ok, not "exactly", but come on: "the majority of startup companies will end up losing money" sounds like a very bubbly thing.

"The majority of startup companies will end up losing money" is a tautology: true no matter what the inputs are.

A bubble is when investors are making lots of money off other investors by trading stuff that isn't worth anything. Risk is being grossly and broadly mis-assessed (deliberately or inadvertently). The bubble pops when people realize this.

In that sense, "majority of startup companies will end up losing money" is actually not a bubbly thing at all. Bubble mentality would be "most startup companies will IPO for huge valuations within a few years."

All of what you've said is true. However, there is still a trend in rising valuation (near bubble level), of which many other investors have noted as well.

Mark Suster: What Angel Investing & Florida Condos Have in Common http://www.bothsidesofthetable.com/2010/11/14/what-angel-inv...

Fred Wilson: The Dot Com Bubble Is Back http://www.secondshares.com/2010/11/18/the-dot-com-bubble-is...

The Trouble with Bubbles (talent, angel & incubators… oh my!) http://calacanis.com/2010/11/18/the-trouble-with-bubbles-tal...

There's something crazy going on in the american start up world. I was astounded that about.me was worth acquiring after listening to the founder of myonepage.com virtually declare it a bit of a disaster as he couldn't monetize it (he's now moved onto bufferapp.com). myonepage.com is practically identical to about.me, founded at pretty much the same time, same idea, good execution. And yet we've got the founder admitting he can't do anything with it.

Some say the about.me acquisition has an excellent team and that's where the money went. myonepage.com is one guy. So you really gotta wonder how great that team actually was.

There's a lot of startups going crazy valuation at the moment with some serious hand waving about business models.


And Facebook will be one of the first to pop, I'm tempted to bet serious money on it. My Dad just joined, he's been a reliable harbinger of death for any popular website.

FWIW, I wouldn't say I've "given up" on OnePage, I have just chosen to focus on Buffer to reach ramen profitability. I still believe it could do very well. I applied to a few accelerator programmes with OnePage and wasn't accepted a few times, I believe partly due to a tough space and partly due to my lack of experience or track record.

I believe OnePage was a "growth first" type of startup, though I could perhaps have introduced pro accounts I don't believe it would have scaled. There is much more customer development I need to do in order to fully understand what the problem is and come up with a solution which resonates with people. I think the space is interesting and the problem is worth solving and will reward the person who does solve it, but I needed a way to try and get out of the freelance work lifestyle and fully into startups without taking funding or joining another startup, so the only real option was to build a SaaS type offering and charge from day 1. Buffer is working out well in that sense and could free my time soon. Once I reach that stage, I will need to decide whether to build Buffer further or use some of my time to rethink OnePage. Not sure which route I will take yet.

Very interesting indeed. I think something like OnePage is more suited for me after I've had some success with another idea or if indeed I had funding, but like you say even those with funding are not making much progress in that space.

I definitely agree that the about.me case was very different from the norm - the founder had previous sold a startup to AOL and worked for them for some time, so that was obviously a key factor.

FWIW, the founder of About.me had really good connections--he'd already had a previous company acquired by AOL, for instance. And some have argued that About.me fabricated their initial user numbers.

So I think maybe About.me is an unusual case.

Revenue is so Web 1.0. It's all about engagement now.

Fans and tweets are obviously the currency of the new millennium.

Actually, Web 1.0 was all about eyeballs. Revenue is for real estate guys.

Haha, agreed. We'll just keep giving away valuable things for free, and keep selling advertising to each other. Nothing bad can come of this :)

Calling this a bubble would make the word bubble meaningless. Alan Greenspan said "irrational exuberance" in December 1996. He may have been right, and we may be in a similar period now. But when most people talk about the bubble they mean the period of total insanity from around 1998-2000. I think "rational exuberance" better describes today.

Two things:

1. The key distinction: when investors invest they think "I'm gambling and I hope I win, but there's a chance I won't." When bubble people buy assets they think "I'm buying something that is guaranteed to go up in value. Free money!" If bubble people aren't buying then it isn't a bubble.

2. When sophisticated investors make wild bets in first rate companies (amazon, ebay, facebook, twitter) and those bets payoff in a big way it might lead to less sophisticated investors making wild bets in more mediocre companies. That would be "irrational exuberance" and we're (maybe) not even there yet. THEN when those bets payoff in a big way then non-investors might start buying to get some of the free money. That's the bubble.

tldr: Valuations are irrelevant. All that matters (for bubbleness) is the psychology of the buyers.

The original bubble: http://en.wikipedia.org/wiki/Tulip_mania

This feels a lot like 1995 or 1996 to me. New technology (WWW then, mobile phones and cloud computing now), just beginning to get mainstream adoption. Coming out of a recession that had been a 4-year funk. Fairly loose monetary policy. A couple hot stars beginning to IPO, but nothing terribly crazy.

People said there was irrational exuberance in 1996, but it took 5 years before the bubble actually burst, and it went up a lot in the meantime.

Ask me in 5 years, and I think then we'll be in a bubble. Now, we're just in a recovery, but not everybody knows it yet.

This feels a lot like 1995 or 1996 to me.

Me too. Ergo it could produce another bubble. But here's why I'm doubtful:

1. Wild prediction: our free money era will be over in 3 years. Last time the money got cheaper as the bubble got bigger, due to the fear of Y2K.

2. No thundering herd of new retail investors. And it wasn't just that etrade and datek opened up the stock market to thousands of novices. They were novices who had watched the market rise for decades and never really go down.

The Fed's the giant wildcard today. Bernanke claims that he has a plan to mop up the excess liquidity in the market. If he starts tightening, I'd predict a sharp double-dip (like 81-82), followed by sustained 80s-style prosperity. If he doesn't tighten or tightens too late, I think we'll get another bubble like the late 90s.

Nope. 4 MONTHS.

Look at the price of gas. Last time it was this high, it was february of 2008. In 4 months, gas shot up to its peak, and we all know what happened right after that.

Second dip is coming. Lots of layoffs, even in tech industry.

Sorry, I don't understand your message. What's going to happen in 4 months?

the end of the world

dogs and cats living together

the coming of Gozer

Aside: Here's an example of what "new paradigm" language actually sounds like. This from the real estate bubble (and Bob Toll is Bertrand Russell compared to what the "new economics" people were saying in the tech bubble). New York Times:

In the past couple of years, Toll and his deputies have begun analyzing European housing data to see if they hold any lessons for a maturing American housing market. Toll has been talking up the research to stock analysts and the financial press for the past year. His conclusions carry a whiff of new-paradigm thinking, but he nevertheless seems convinced that Europe's present-day reality is America's destiny. I asked Toll what our children - my kids are both under 8, I told him - would be paying when they're ready to buy. "They're going to live with us until they're 40," Toll said matter-of-factly. "And when they have their second kid, then we'll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income."

I grew alarmed. Was he kidding? He assured me he was not. "It's all just logic," Toll said. "In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half." The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they're going to get only half as much. "And that average, million-dollar insane home in the burbs? It's going to be $4 million."


One idea that shapes the outlook of real-estate economists is the notion that cities, in a rough conceptual sense, are replacements for one another. A city is founded, and residents and industries settle there; over time, that city and its metro area might reach a population of a million residents. As demand to live there increases and the supply of good land diminishes, housing gets more expensive. But lo, another city arises nearby, where land is cheaper and jobs are plentiful. Residents can now leave the first big city, if they choose, and move to the second, smaller city. Until, that is, the second city becomes large and crowded and expensive as well. Then another city grows nearby, and so on. As pressure on prices and land builds, a new city can act as a pressure release.

It's possible that this model has broken down over the past few years. A small cadre of economists, in fact, has begun to ask whether the irrepressible inflation of home values in many coastal metro areas actually reflects a deeper logic based on the straitened land supply in these cities. Boom-time rationalists always run the risk of earning a black mark of infamy like that worn by the Yale professor Irving Fisher. (Just before the 1929 stock-market crash, Fisher declared that stocks had reached "what looks like a permanently high plateau.") And it is virtually impossible to find an economist - or a home builder, for that matter - who thinks the recent growth rates in home prices are sustainable; even the most sanguine among them predict more moderate appreciation over the long run. Yet almost without exception these thinkers, though they come from different political persuasions and even different research specialties, have attributed high home prices to zoning. Further, they have amassed a fair amount of data to support their arguments.


We're missing the one thing that makes a bubble a real serious bubble which is "Well, let's invest in this because there is literally no way to lose!"

This was the mark of the housing bubble (otherwise my parents wouldnt have told me to buy a house almost immediately after I graduated college) and is why people invested in Ramps.com and petfood.com at the time of the dot com boom.

That's the type of behavior that is the mark of a bubble, we're not seeing this happen yet.

Important to note that venture beat also made a great post exposing PG's point of view:


Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant.

We're seeing the saplings of a similar movement now, though. This time, people are talking about online advertising as if the Internet is the second coming of television, even though there are serious doubts about the persistence of revenues going to the Internet's second-largest advertiser (Facebook).

Some other companies: Groupon sells coupons to millions, but small business have mixed reviews of their experience and might be engaging in questionable pricing schemes. Quora is a question-answer site with no revenue model in sight, and they're already valued at eight figures.

If there is any evidence of a bubble, it can be found in how people wave their hands at the future revenue streams of these companies. They're great products, but if their click-through rate sucks how will they make money?

No, it was different. People were saying that the very nature of the entire economy had changed permanently. And that that change came with dramatic, almost overnight increases in the value of everything due to increased communications.

Books were written about the supposed phenomenon.

I've cleaned up my comment for clarity's sake, but I basically argue that we might be seeing the same phenomenon again with online advertising.

What Damoncali is saying is that the hysteria wasn't focused on particular companies or business models really, it was that people believed we were in the middle of a one of a kind economic paradigm shift rendering valuation concepts like 'profitability' obsolete.

"[There is] an increasing conceptualization of our Gross Domestic Product – the substitution, in effect, of ideas for physical value."

-Alan Greenspan

When you start hearing quotes like that from people in charge, then you know we're really in big trouble.

Sorry, you both make great points. What's the context surrounding that Greenspan quote, though?

Say what you will about sarbox, but the fact that the public isn't able to get carried away in hype severely limits the size of a potential bubble.

Another data point to consider is the general internet savvy running around these days. Consider all the kids coming out of college these days that grew up with the Internet. A lot of them had cell phones when they were 10. Basically, all young people understand the Internet at a very natural level now; it's not just relegated to computer geeks and technology fetishists. This means a lot more ideas, and a lot better design, to say nothing of the improved tools we have today (REST vs SOAP, Rails vs ColdFusion, etc).

All that said, every bubble is different, and by definition happens because of what people aren't expecting. So I'd say there could definitely be a bubble brewing. Consider for instance, a future in which Facebook executes amazingly, but at the end of the day we discover that all that social activity is actually as worthless as Google hopes it is. The valuations are high because outcomes are unpredictable on this stuff, not due to irrational exuberance.

Crucially, nobody was calling it a bubble, until at least a year after it had, in retrospect, popped. Proper bubbles are a product of the madness of crowds, and are impossible to call in anything but hindsight. If we are in the middle of a bubble at present, by definition, almost none of us know what the bubble is in.

I disagree- Knowing it's a bubble doesn't mean you aren't contributing to it. In any bubble there are people who know it's a bubble but think they can make a ton of money in the meantime and then shrug their shoulders when it pops.

I'm not so sure that nobody was calling it a bubble. I sure felt it was, but didn't have a lot of money in the stock market then, so I wasn't personally concerned. I just billed my skills out at crazy rates and loved every minute of it.

For example, people knew there was a real estate bubble and were trying to flip houses to make as much as they could before it popped. My mom has a neighbor that didn't plan on being her neighbor, but he bought right before the real estate crash and couldn't sell in time.

It's a mix of exuberance, ignorance and hubris that seems to lead to this sort of fall.

But what if this is a "bubble" Who will get hurt when it pops, especially if it pops before major IPOs happen. Lots of private investors will lose out, but will the general public get hurt?

That really isn't true at all, it was a common topic of conversation well before the markets peaked.

All due respect, but I think that's retrospective bias talking. It feels obvious in hindsight that it was a bubble, so those conversations with bearish people are amplified in your memory. The fact that some bears existed proves nothing; no matter what is going on in the macro-economy, at any time in the last 20 years Nouriel Roubini et al. would have been happy to explain how it's all an illusion, we'll all be eating out of trashcans in two years, just you wait.

While the music was playing in the late '90's, the cautionary voices weren't any louder, or taken any more seriously, than they were at any other time. They weren't even all particularly focused on the Internet boom; much, much more pessimistic sentiment at the time was focused on Russia's sovereign debt default, the currency crisis in Asia, or the LTCM bail-out.

As for the Internet stock valuations at the time, many people reasoned that if you looked at the entire investment in "new economy" companies, all that was required for those investments to reward their holders' level of risk was one Microsoft. This was essentially true, by the way, and if you stuck to your guns and held onto Amazon from its local peak on 3/31/1999 ($86) you would be up about 120% today ($188).

It's pretty easy for me to sanity check - I sold a large block of YHOO in '99 because I was convinced it was strongly over valued, several friends congratulated me on my wisdom. Of course I spent over a year feeling like an idiot, but it does make for a clear memory.

There was one of the well-known columnists for Infoworld / EWeek / Computer World / One-of-those-magazines, that was calling it a bubble quite a while before it popped. My memory is telling me it was Bob Metcalfe, but I couldn't find a citation to back that up during a brief search. But, at any rate, there were definitely some people recognizing the bubble a bit early.

Beyond being an expert I have some intuition, may be the money moving around is smaller but the craziness is high and probably will be higher than 90s because it's easier to get some small money and die in a shorter cycle. Just looking at AngelList I am impressed.

But what really changed is the level of dependency on Internet services around the world and this is where it's different than the 90s. In the 90s the major sites had some more specific purpose (buy books), now we have Internet completely engaged in our life workflow and even our microtasks (e.g.: copywriting, having a form) can be "outsourced" to some site and this is the opportunity. In the past I feel stupid if I didn't set up my own SMTP/POP3 server for my domain (it's free, open source, blah), now I realize that it's cheaper to pay for a lot of more things, even if it takes just a few hours of my day.

Is this a full-on bubble? No, it's probably nothing like the 1990's. But I still think the truth is that today's monetary situation is creating an incentive to chase yields, and it is not out of the question that this is showing up in VC valuations just as it is showing up in commodities.

The fact that these valuations seem to be stemming more from the money others have put in (or said they would be willing to put in) rather than the revenue of the company itself ought to arouse deep suspicion. Yes, I understand part of a valuation is examining the pricing signals being sent by the market, in this case VCs, for the particular company. Still, look at Twitter. Some valuations for it have come in at $10 billion when it's been admitted their yearly revenue is $150 million. If Twitter were to IPO at that valuation, that means 99% (+/- for whatever other assets they might have) of their float would be pure leverage. For many other tech start ups, the same sort of situation exists even if the magnitude is not as great.

For those down the line in the thread talking about the better development tools/programming languages/hardware in relation to this topic, let me ask: how do better development tools justify higher valuations? Certainly, I'd rather be developing a web app with Python/Django today than in ASP in 1995, and running it on today's server hardware with today's replication and load balancing strategies. There's no doubt the development cycle for many kinds of applications has been radically shortened. Yet, the revenue model for many of these internet companies is only slightly clearer than it was in 1998. That is not true of every company, only some; but it is true of enough that I think it is cause for concern.

Experimentation is a wonderful thing. It is the only way the economy advances and people's lives become better. Part of the "startup industry"'s job is to provide that experimentation, and by its very nature most will fail. The problem is when the investment community begins to pay a large speculative premium for that. Even if the resulting "bubble" is not an economy-destroying one as it was in 2000 or 2008, it can still do a great deal of harm.

That's just exactly right. Back in the 90's there were companies IPOing 6 months after having raised a first round, which was usually in the millions of dollars range, and without a shipped product, without any business model, etc.

Now said companies actually do have disruptive business models, and are actually adding value to the world and creating wealth. It's true that some of those are overvalued, but that's not a bubble at all.

I called the late-90s tech bubble (ask my friends and family!), and I called the last decade's housing bubble (ask my wife!). This doesn't make me Nostrodamus, but it does give me more confidence in my ability to see (really big picture) macro-trends.

And to me, what we're seeing today is in no way comparable to a bubble. Maybe some companies are being purchased at inflated prices, but there a ton of startups out there that really could change the way things are done. Most of the individual startups may fail, but I'm pretty confident that overall, many sectors of the economy are ripe for disruption. The economy will be changed.

That or somewhere around 2008, my mental habits went from skeptically pessimistic to irrationally optimistic. Could be the case; these are happy times... :)

I agree with you, and as someone who gained an interest in startups before anyone started calling this recent trend a "bubble" I ask myself one question:

Will this change what I'm doing with my startup right now?

And the answer for me is a simple "no," as it should be for virtually any founder.

I'm not so sure about that. It's a fact that raising money now is way easier, and you tend to get high valuations, so many founders should probably fundraise as long as the current hype stays up. It may easily be that next year valuations will be way lower for web startups.

Very good point. There are certainly tactical moves that will change due to conditions, such as fund raising. But the general "run for the hills" attitude I see in many of these posts isn't productive. It's almost as if I see people hesitant to start because they fear that things will fall apart in short order. Maybe I'm reading to much into it.

Whether something looks like a step function or not depends on the time scale at which it's observed.

It seems to me that today there is a "new economy driven by the Internet" and productivity has greatly increased in the last decade (which is probably one of the reasons for the current unemployment problems).

I don't think we even understand the impact that having all of human knowledge just a Google query away has had on our activities.

My bet is that 100 years from now no one will think of the 90's as a bubble. They'll think of it as the beginning of the Singularity.

GeoCities was $3.57 billion. I'm not sure how that stacks up against Facebooks $50 billion. Facebook has a different business model, larger market, and people use it more intensively.

How much is GeoCities worth now?

What about MySpace?

It's interesting to be reminded of the productivity step function messaging. I would say that's happened, massively. What it seems to have done, though, is drive down the total cost to achieve something, rather than drive up the final value of an organization. That's definitely a surprise.

Is the valuation of FB, Twitter reasonable or is there a lot of money moving in based on self-fulfilling speculation that this is "the next big thing"?

Thanks a lot for chiming in.

Whether it's MBA raising money from LPs or Yuri Milner raising money from individual investors/on london stock exchange, it's still stupid money, though.

And yes, the money moving around is smaller compared to the 90s. But the economy is way smaller compared to the 90s as well.

Probably not. Here's some questions:

1. Exactly what asset class are we referring to? It's probably not a credit bubble that had issues back in 2008, probably not housing, maybe commodities, maybe equities... but most likely HN discussions revolve around the eye-popping valuations in Groupon, twitter, facebook, zynga, and so on. So it's probably not the bubble, but a bubble.

2. How can you tell the difference between a moderate capital mis-allocation and a straight up bubble?

3. Have you actually compared what was going on now compared to any other bubbles that popped?

4. How much widespread adoption have we had with respect to capital allocations in these "overvalued" names? They aren't public, and there's not widespread participation by the "unwashed masses" in this asset. Compare that back in 1999 when non-revenue companies went IPO and everyone piled in.

5. Speaking of IPOs, how are they doing? How many names go IPO right now and see their stock triple in 90 days?

6. What's the size of the total bucket of money in this "bubble" relative to the total capital market?

7. What kind of deviation from historical valuations are we seeing in VC-land? Is it a total market deviation or limited to a few outliers that everyone loves to hate on?

8. Are bubbles really this obvious?

9. Even if we are in a bubble, are we early stage or late stage? Are we hearing about the million-dollar florist from twitter in Time magazine yet?

Regarding "not a credit bubble," where do you think the money to push up these asset prices came from? Cheap money and low rates = financial institutions desperate for yield = pour money into high yield "hot" sectors.

The people purchasing FB and Groupon shares are only a few steps away from the Federal Reserve money fountain. This leads me to believe the bubble (or whatever we want to call it) is credit driven

That's possible, but let's take an analogy with the housing market.

Market's were overflowing with liquidity due to low rates and easy credit, and then the housing market securitization exploded to the upside, which then fed on itself and created it's own bubble. There was mass participation from all the major banks, and we saw real estate riches books in Barnes and Noble.

How does that compare to now? We've yet to see public securitization of these "overvalued" companies, and there's no outrigh participation by banks leading them to IPOs, at least not yet... there's GS raising capital for facebook but that's really it.

Yeah we could get all zerohedgey with respect to how the fed is pushing up assets, but the majority of capital is coming via public equities and commodities... and the participation really isn't there at the moment.

The important question is: where is the money coming from?

If it's from hedgies flooded with investment from banks, then it's credit driven. In a zero interest rate environment banks are going to be desperate for yield. There's nothing zerohedgey about that, it's just financial system basics.

EDIT: To clarify and put into textbook terms: in a good economic environment, there will be plenty of good projects to put investment dollars into. In a bad economic environment, credit contracts so there are less good projects but also less $s floating around. If you flood the market with credit in a bad environment, the same amount of $s you had in the good economy are chasing far fewer good projects.

Banks need to find yield so they take all the extra credit sitting around and pour it into hedge funds, VCs, etc. Those funds need to put the cash to work and so they pump up hot sectors to get their return. Bubble forms as valuations for companies like Facebook go through the roof. It's driven by the excess credit, ie. stimulus investment dollars that need to find a home.

I'm curious to see how many people who think we're in a bubble were around for The Bubble in '97-99. From where I'm sitting, this is not even close. Consider:

There were IPO's like every other day. Often, these companies were less than a year old.

People were driving up the wrong company's stock by 10% in a day because they mixed up the ticker symbols.

Stock swings, usually positive, of 30-50% in a single day were not uncommon.

Companies with no business at all were raising hundreds of millions of dollars in VC.

The number of VC firms was exploding.

AMZN, SUNW, DELL, and the like would go up 3-5% pretty much every day

Day traders with no experience were plowing tens and hundreds of thousands of dollars into the market. There were companies who did nothing but cater to these people. (Not many of either are left).

Kids fresh out of college were being paid $125,000 to write plain HTML and getting pissed off if they didn't get huge raises.

Webvan - look it up.

So, I guess I' not seeing a bubble. Just a few wacky valuations here and there.

Basically at this point there's just hardly any woo-woo going around about the New Economy Being Beautiful With Money Falling From Trees or other neo-utopian wackiness. I think we might be in the early stages of a tech funding boom, but I just don't think people are that bullish right now. I see a lot of uncertainty going around. People are simply scared of the Great Recession and there're way, way, way too many people thinking about the '01-'02 bust.

When that fear starts going away I think a bubble has a chance of beginning.

/famous last words

Wow, I was like 9 during that period. Thanks for telling me what happened!

My short answer: yes.

My long answer: the economic growth of the 1990s went mainly to the upper classes (median wages hardly grew at all, especially when you take rising health-insurance costs into account). Instead of consuming their profits, the people in the top brackets keep looking for things to invest in. People who want to invest conservatively are pouring money into T-bills (thus, in spite of the massive deficit, Treasury rates are still quite low). People who want to be aggressive once invested in dot-coms, then stampeded to real estate and too-clever-by-half financial instruments, and now are pouring money into social media. Capital will continue to flit from one bubble-opportunity to another until the people at the bottom of the pyramid have more actual money to spend.

The difference this time around is that:

1: People started worrying about profitability years ago and are actually trying to make it happen

2: There are quite a few tech giants and hundreds of smaller tech companies with stable income sources

Remember that in '99 Microsoft hadn't launched XP, Google was years away from an IPO, and cell phones were still a luxury.

I think there are little bubbles here and there, but the pop won't be as devastating.

What should the contingency planning consist of?

Personally, I'm seriously considering quitting my job and moving to a startup hub. Should this affect my plans? Should I wait for the pop, plus 6 months, saving up money from my day job, then move?

No, that's exactly wrong. Go start your company and get your funding as fast as you can. Then hold onto it. When the inevitable dip (or "pop", for the zealous) comes, that's when you use that money to hire some recently-out-of-work engineers for cheap.

wait until atleast Sept. QE2 ends in June. So the Fed will stop pumping money into the economy. You'll have a good idea if we'll slump into a double dip recession by September.

I think it has been pretty much solidified that the economy is not going to experience a double-dip.

We will see. If I were a betting man, I would wager that Helicopter Ben will announce QE3 before June.

I'm not too qualified on the specific sector, but if I were looking for a stable job, I'd look at the company's income sources and investments.

I'm sure someone will be along with specific advice shortly.

I'm not looking for a stable job. I'm considering when I should get rid of one.

Tech is multiplying faster than the rest of the economy can deploy it. With so many options, committing to a particular framework infrastructure means opportunity costs appear to rise unusually sharply. It reminds me a bit of the MSX & Commodore computer period in the 80s, not long before the PC moved down from the business market to the consumer one.

Remember that post a month or so back about how there were too many different Android phones, and iPhone was so much nicer - there's a new one every June or July, so you don't have to worry about your shiny new Android phone feeling old hat after only 3 weeks. I don't feel that way, but I could see where he was coming from. Same thing with Facebook; the secret of its popularity is that it's fairly simple and consistent, which was also one of AOL's key selling points. Most people don't want to reconstruct their internet/computer experience on a regular basis, as demonstrated by the histrionics when many popular sites decide it's time to clean up their layout or switch to a new logo. Google's approach to this is to just be in permanent beta which I like very much, but sometimes I get frustrated at the way things seem to evolve (or slow down) on 20 different schedules.

I have felt for a year that we are approaching one of the periodic phase transitions that result in a whole new wave of growth, and that the leadup to such periods is characterized by great energy and inventiveness, but also a lack of focus and rising overhead. My gut says what's needed to progress will leverage semantic web technology, but that we're another year away from achieving the required information density which would allow it to be useful. Also, it's going to be quite C/GPU intensive, and take advantage of the fact that many modern processors are underused.

I take this to mean "Are software companies overvalued relative to the rest of the economy?" No. I can't prove my side -- like in the stock market, no one can -- but it's hard to put a cap on how well the software sector will do.

Every activity in the world is involving more and more software. Code builds on itself, and technology has only very recently crossed some fundamental thresholds, like ubiquitous powerful arbitrary computation and global communication at close to c. Together, these imply that the opportunities for value creation will continue to be enormous, and in the big economic picture money will redistribute from other industries to software.

That was true in 1999, but people had a lot less information with which to estimate the size of these kinds of opportunities. Given this uncertainty, the amount of money invested may have been rational, at least at first, even though the bet turned out to be wrong. Now people have enough information to estimate well.

We are not in bubble - this is refection of our monetary policy. Look at commodity prices. Look at stock market.

I think the real bubble is bond market - which is causing froth all over the market.

as long as money is free, this is not a bubble.

As you're completing this poll, consider the following (a post to my blog about a potential bubble, Jan 21):

There has been discussion lately about whether recent valuations of emerging Internet companies reflect a second Internet bubble. A recent investment by Goldman Sachs valued Facebook at $50b. In the secondary markets, Facebook’s valuation has since increased to $70b. The sky high valuations are not exclusive to Facebook. Analysts suggest that Groupon is planning a $17b IPO. Meanwhile, Zynga has an implied valuation of $5.8b, based on trading of its shares on the website SharePost. The list goes on. The question is, do these valuations indicate a second industry-wide Internet bubble, much like the bubble and subsequent crash in 2000? Or is something else going on?

A look at the progression of other infrastructural technologies is useful. Consider the history of electricity. Paul David, an economic historian at Stanford, noted that it took many decades for business and society to reap tangible benefits from electricity. While important technologies were introduced throughout the 1800s (e.g., electric motors, light bulbs, generation stations), David suggests that an observer in 1900 would have found scant evidence that electricity was having an impact on business efficiency. To take advantage of electricity required not only the introduction of new technologies, but also a deepening of our understanding and in turn a transformation of business and social processes. For instance, manufacturing facilities, which were originally designed for steam power, needed to be significantly reconfigured.

Although David’s discussion was focused on the lag in productivity improvements resulting from electricity, it provides some useful insights about the state of the Internet and its commercialization. While the first computers emerged in the 1940s, and the Internet was born in the 1960s, it wasn’t until much later that computing and the Internet were widely adopted by business and consumers. For instance, it wasn’t until the early 1990s that the Internet transitioned from a government/ academic project to a commercially available system, and the Internet wasn’t broadly available to consumers until the mid-1990s.

In a mere five years from the commercial emergence of the Internet, we faced the first Internet bubble and bust in 2000. Looking back at history, it’s no surprise that the first wave of applications generally performed disappointingly, both technically and commercially. Broadband connectivity, the Internet backbone, and critical software and hardware standards were still in the early stages of development. Along with an emerging infrastructure, there was a limited understanding of the potential of the Internet among entrepreneurs, established companies, and broader society.

Now that we’ve had 10 more years to develop core infrastructure and to deepen our understanding of the Internet (and computing) from a technical and commercial standpoint, we are witnessing the emergence of a new crop of high-growth companies. Distinct from many of the Internet companies that arose in the late 1990s, a greater percentage of today’s companies receiving venture funding are both technically and commercially viable. Many deliver real customer value and have a tenable revenue model. In addition, to companies such as Facebook, Groupon, and Zynga, there are a myriad of smaller successful ventures, such as Pandora, Dropbox, and Airbnb.

To conclude, the 2000 bubble arose just a few years after the commercialization of the Internet. There was excitement about the potential of the Internet, but the supporting infrastructure and our knowledge was in its relative infancy. A decade later, we have made significant progress on both fronts. The latest new ventures incorporate technologies and business models that reflect significant infrastructure improvements and our maturing knowledge-base. Are select companies, such as Facebook or Groupon, overvalued? It’s certainly possible. Does this overvaluation reflect an industry-wide bubble? I don’t think so. In fact, I think we are at the early stages of a multi-decade transformation, catalyzed by computing and the Internet, and we will continue to see significant opportunity and new venture growth in this space. We are moving toward ubiquitous computing and connectivity, where technology pervades our business and personal lives. Personally, I look forward to participating in this exciting and dynamic future!

I so hope you're right, but I think this firmly falls into the "This time it's different category". Each bubble has people saying this for various different reasons. I upvoted but disagree because no amount of explanation will make me digest a 50 billion dollar valuation for facebook. I think people just got used to big numbers because of all the bailouts that happened last year.

It's good atleast that people are talking about this though. I wonder how much discussion there was about a possible bubble in 99.

But are the odd billion dollar valuations outliers or representative? How many profitable tech startups are they surrounded by? Is the support for those profits sustainable?

Groupon has a $15 billion valuation and it is actually harmful to smaller businesses that use its service.

I've seen less than ten companies mentioned in this whole thread with large valuations like that. That doesn't seem bubbly to me.

In terms of what makes me feel like we're in a pattern that is similar to '97-'00 it isn't just the very large valuation companies, in fact that isn't much of it at all to me.

It seems to be across the entire spectrum - VC's showing up to initial meetings with term sheets, higher initial valuations, very young companies being sold for high amounts, lots of rather underwhelming products/models, accelerating valuation increases and a public and press fascination with the sector.

I'm not saying that's conclusive proof at all, but many behaviors seem very familiar.

We could be seeing an aftershock from the last one. It seems like a lot of VCs either are or are working with people who cashed out near the high point of the boom.

Precisely: the people insisting that we're in yet another bubble cannot make the distinction between anecdotal and representative companies. Yes, there a handful of companies that may be overvalued. That is not going to take down the economy, no matter what happens. If you think it is: you either weren't around for the real bubble, or you weren't paying attention.

All the analysts were saying similar things in 2000... the field is misunderstood, there are great transformative forces at play, you needed to subscribe to our new theories about how things work to understand everything, etc., etc. These valuations are naive projections of future growth -- most likely these firms will reach constraints on future growth.

'99: a .com needed a team of engineers and a big expensive server to try a new idea

'11: one guy, one weekend, and a day's pay for a cloud service to try a new idea

There are legitimate fundamental differences between then and now. Think about how many people toss up a weekend project for review here on HN that would have been a huge team effort back then. I'm not saying I can see the future (like a lot of people tried to then), but it doesn't seem as hazardous this time around.

Yes, you can "try" an idea in a weekend, but it's only going to be a rough sketch, not a polished experience. You still need a team and months/years of effort to bring it up to the next level so it can get the billion dollar valuation. How many weekend projects have billion dollar valuations?

Edit: In reply to mkr-hn whose comments I cannot reply to for some reason... I believe that this thread was about a bubble and billion dollar valuations not weekend companies worth much less.

I'm not talking billion dollar valuations. I'd rather have a thousand million dollar companies than a few worth billions.

A weekend sketch can be enough to get that team.

By that logic you could say more thought had to go into ideas in the first net bubble since the costs were higher.

You're overestimating the "logic" used by the MBAs who drove the '90s dot-com bubble. The costs were higher, but cash flowed easily from VCs back then, as well.

Yes, it's all the same, but this time it's different! Really!

And every time, people believe it.

Actually, that's not exactly true. Remember the term 'irrational exuberance'? Alan Greenspan wasn't talking about how everything was peachy keen, and that was well before the implosion.

There seems to be an assumption here that most of the business ideas during the bubble were bad ideas. That's not true at all. In fact many of the earlier bubble ideas have since been recycled. They were simply before their time is all.

Now there certainly were a lot of bad ideas that got funding, but that was after the gold rush was already established. They were a symptom of the enthusiasm and optimism, and the lack of other high return investments.

I actually think this is a bubble, and it's much worse than the last one. Valuations are insane. There's very little investment competition from other verticals. Making it as shiny, if not shinier than it's ever been to a potential investor... which can only lead to...

most of the business ideas during the bubble were bad ideas

Maybe not most, but a significant number of business ideas during the dot-com boom were ill-conceived. Profit and sustainability were things that would simply happen as if by magic; the idea was to get a company out there, spend a lot of VC money marketing and building, and the rest would fall into place (as immortalized on South Park by "Collect Underpants ... ... Profit!").

Certainly there are companies today that resemble that M.O. a bit -- Twitter is useful and interesting, but their business model is still a work in progress after years. Most companies today are more sensical, are smaller in size and need less cash.

it's much worse than the last one. Valuations are insane

You obviously don't remember the dot-com boom. It's not worse; today is nothing compared to the ridiculousness of that era. A scant few companies have valuations that are questionable or appear ridiculous. They may be. But most companies -- the vast majority -- are not operating on crazy valuations. Back then, every company that began with an "i" or an "e" was worth millions, automatically. Today, we have, what, about five that are overvalued? That's a "bubble"? No, that's just exaggeration -- and a wild misunderstanding of what "bubble" means.

I think many people here are comparing the late stages of the dot-com bubble with what I would call the early stages of the current bubble. I remember it gradually getting hyped at first, then it hit a tipping point when pets.com happened (I miss the sock puppet). I also remember a lot of really great ideas being explored before it tipped.

So, I do remember the dot-com boom (in fact I was at a startup in Seattle during it), but I guess I remember the beginning of it being more humble.

I think we're just getting warmed up now and to me all the signs are there. This is when the hype companies are starting to show up. The recent high valuations are going to fuel the fire, and it's starting to get nuts. I don't think the lower operating costs are a factor. Most of the high profile dot-coms blew their wad on marketing.

It's just an opinion though, and it wouldn't be the first time I was wrong. Guess we'll see how it goes.

No Tech Bubble specifically - ALL ASSETS OVERVALUED because the FED is adding trillions of $$ to the capital markets, most of which is being used to drive up commodity prices (intended to increase bank lending while also helping Wall Street Banksters get richer). IT'S CALLED INFLATION (almost hyper) and you can thank the US Goberment for increasing all of your input prices and food costs.

I have to think you are correct. Even if there are valuations that are unwarranted, it is not equivalent to the Dot-Com bubble, where almost all companies were getting flooded with cash and high stock valuations on ZERO revenue.

I don't want to ignore the possibility of a secondary recession, but I can't see much merit in talk of a 'bubble bursting'. This isn't much of a bubble.

A dangerous bubble is when your neighbors, parents, sisters and coworkers start talking about leaving their jobs and making it big in 'whatever' the big thing is...real estate, dot coms....gold...this might seem like the case in SV, but it isn't common anywhere else in the country, yet.

As with anything in a good market, something of value will prevail while something that adds little value will be popped. If your product is useful your fine. If not be weary.

Facebook name makes more Billion than anything ever; there’s definitely something scary going on there.

Since I started paying attention, it's been like this:

1999: People asked "Are we in a bubble?" 2000: People asked "Are we in a bubble?" 2001-2003 Recession 2004 People asked "Are we in a bubble?" 2005 People asked "Are we in a bubble?" 2006 People asked "Are we in a bubble?" 2007 People asked "Are we in a bubble?" 2008-2009 Recession 2010 People asked "Are we in a bubble?" 2011 People asked "Are we in a bubble?" Are we in a bubble? Are we in a bubble? Are we in a bubble? ... Yes, apparently unless contraction is obvious, we're always in a bubble and everything in life is only ever getting worse and we'll all die horrible miserable deaths and then the zombie apocalypse comes. PANIC! OH NO! Run for the hills!

Or just work hard and try to do the best you can and stop worrying about things beyond your control.

In the spirit of selling pickaxes rather than mining for gold, I actually sell software which helps people practice surviving a zombie apocalypse:


There are really two potential "bubble" worth talking about at the moment - the broad equity markets (up almost 100% in the last two years) - and the early-stage Internet market (not Facebook, but Groupon and the early-stage investments.)

I'd argue they're maybe related but they're not linked, given the lack of a big tech IPO market. In the 99 bubble it was the vision of a big IPO driving the private tech bubble. These days I'm not sure that's true.

There's a third bubble worth noting - real estate. I don't think it's nearly done deflating, and if rates start to rise back to normal levels without incomes starting to pick up (which would require a major drop in unemployment) we're going to see another down leg there as millions of baby boomers try to get liquid on their home equity to fund retirement.

If it's a bubble for sure it's not as big as the latest one. At least now acquisitions are happening either as an alternative way to hire good talents, or about services that may not be profitable but are surely really popular among users, and most of the time there is somewhat a business model that makes sense.

That is in general, but I think we saw a few very strange things in the latest couple of months.

My rule: if people are worrying that there's a bubble, there's a bubble. It's almost the definition. It's clearly not as bad as the last one in that the overvalued companies actually have some value to begin with, and it's only us techies fretting right now, not everyone and their cab driver.

The trick is figuring out what to do with that information.

Actually, you've got it almost backwards. If people are worrying that there's a bubble, there probably isn't. Bubbles form when everybody thinks things are worth more than they are. This produces a positive feedback loop whereby investors buy things they think are valuable, raising their price and therefore perceived value, causing other investors to buy.

If everybody's worried that there might be a bubble, then investors will be more cautious about buying simply because others are buying.

The biggest difference between the tech bubble and what's happening today is that the investors are all sophisticated--these aren't retirees dumping their savings into Pets.com stock.

No, I don't have it backwards. :) There's always two groups of people. The wild-eyed optimists, and the doubting Thomases. There are still tons of wild-eyed optimists right now, but for me, the emergence of a vocal minority of doubting thomases is a clearer sign of a bubble, or at least the late stages of a boom (is there a technical difference?), because it means those closest to the issue are starting to tilt more pessimistic than the investor community at large.

There are few to no "wild-eyed optimists" right now, save for a handful of investors pumping money into Zynga and Facebook. If you think that compares to 1998, you really ought to go back and re-read history.

It's not as wild as it was then, no doubt about it. But the investors pumping money into Zynga and Facebook are still significant.

Why is it significant? Those are two companies. Two does not compare to the hundreds of public companies that had millions pumped into them and the widespread investment in them.

Another thing to consider: A bad investment needs a lot less cash to do what it did back then with all the cheap space, bandwidth, and CDNs running around. You could fund 20 risky startups for what might have been a first round for a single risky .com in '99.

We're in a bubble of people asking this question, for sure.

There's a sort of valuation = real dollars group-think problem I'm noticing in the conversation here.

Consider: what are the economic consequences of a $1 investment in 3x preferred stock for Facebook at a One Trillion Dollar valuation?

How about a One Hundred Trillion Dollar Valuation (cue Doctor Evil Music). OMG! HUGE TECH BUBBLE!

Answer: the same; the investor will make 3 bucks. Or, if FB goes totally under, she will lose $1.

During the dotcom bubble, companies like Zefer had $100 Million SERIES A rounds. <<--- No revenues. This is not happening right now, in any way, shape or form.

Are valuations off for early stage companies? Hard to say. Right now, with the YC class returns, they are certainly not off, if you believe a VC firm should earn on average no more than 25% return a year. Of course, that's short term.

Long-term, of course, I don't know. But, there are a number of factors that say this is very different than the late 1990s: 4-10x lower cost (time, cash) to deploy technologies, far more tech savvy investors, and a more investor-friendly "this cash is going to let you upgrade from ramen to peanut butter" vibe for early funding rounds. These are significantly different dynamics for the tech world.

Finally, if there is currently a 'valuation' bubble, it is most certainly not an 'economic' bubble. The total dollars floating around for these transactions is quite small compared to what happened during the dotcom crash. However much we like doing our startups, almost none of us are materially impacting the US economy. In fact, because the startups are so job-efficient, we are impacting far less per-startup than the last group, ex all of the public IPOs which took grandmother's money.

Well said. It is amazing to me that so many people here can't understand the difference between a bubble and isolated investor activity. A small group of potentially bad investments is not the same thing as large-scale irrational exuberance.

"Dude, if someone said Facebook is worth $50 billion, then we have to be in a bubble -- Dropbox and Github better get ready for a huge meltdown!"

I doubt it, the P/E ratios of most tech companies is no way near 1999 levels. But there are some isolated examples of irrationality. I don't know anyone who seriously thinks Facebook is worth $70bn (i.e. more than Sony).

I suspect the low interest rates are pushing a lot of private capital into higher risk but 'cool' areas.

You do now; I think Facebook will add more global value than Sony in the next 10 years.

I agree: Sony's consumer electronics division has produced a steady string of losers lately, and they're having a rough time competing with Apple. I'm not sure what their other divisions are doing, but it's been years since Sony was hip.

Facebook, on the other hand, is sucking up a huge fraction of the hours spent online by hundreds of millions of people. If you consider them as an advertising-supported entertainment company, they're doing great. Facebook's revenues are still only a couple of billion dollars per year, but they should be able to monetize more of their traffic over time.

Note that I haven't run the underlying numbers on either company. But from 10,000 feet, it's [edit: not] automatically clear that Sony is worth more Facebook.

"...it's automatically clear that Sony is worth more Facebook."

Really. That's quite a claim. I derive almost no value from Facebook, and I mainly have a profile to let people know I actually exist. I know many people in the same boat. I couldn't care less if they folded in the morning.

There was a guy here on HN a while back saying that his business saw absolutely no ROI from Facebook ads, because people simply don't click on ads - they are on Facebook to chat with friends, not buy teeth-whitening products or whatever. That guy reckoned a lot of people are trying Facebook ads because every business must be 'social', it's the thing to be seen to be doing. Once enough business get burned, word will spread and Facebook will lost a lot of ad revenue. Just one guy's opinion, but it makes you think. There was another article saying Facebook is like a nightclub that is currently the cool spot to hang out, but it will inevitably lose it's lustre and go the way of MySpace. People will migrate to the Next Cool Thing™. Again, just one more data point to consider.

Since you ended with a bold claim, I will too: that within ten years, Facebook will be almost forgotten. Sure, it will still have traffic (so does Bebo and MySpace) but it will no longer be picked up by TechCrunch and mainstream media.

Sorry, my final claim as originally posted was incoherent, and the exact opposite of my actual argument. You may have misread my final claim, which is unsurprising, because it made no sense. I've edited it appropriately.

I've heard mixed rumors on Facebook advertising: Not all the stories were quite so grim. As for the future, I've seen a much larger number of non-technical users (especially older adults) using Facebook than ever used MySpace, etc.

Personally, I don't use Facebook much, because their privacy policies keep changing.

If bubble means too much money invested in shitty companies, YES. If bubble means all those investors will retract and stocks will go to hell (like 2000), NO.

Bubble does not mean too much money invested in a few (potentially) shitty companies. That's a ridiculous mis-use of the word. Ergo: no bubble.

I used to count the limos passing by in downtown SF (there were many). It's nothing like that anymore and hasn't been for some time.

I personally think we are at the beginning of a bubble but I'd just like to throw one thought out there. A bubble is only a problem if the businesses spend like the bubble will never end. If companies use their money judiciously than they stay in business and their investors eventually get a pay off (think of companies that survived the first bubble and how rich their investors are now)

So if you're a startup you should act like any other business and get profitable as quickly as possible. If you're an investor you should only invest in companies that use their money wisely. If you do that the bubble shouldn't have any impact on you.

Is it common to have an industry bubble (an industry as large as tech) in the middle of coming out of a huge recession?

Some industries move ahead of the broader economic cycle (housing is often used as an example - when time on market in the US exceeds 9 months on average, a recession will usually follow) and some lag behind that cycle or invert the cycle completely (liquidation lawyers, I'm looking at you).

'Tech' is fairly broad, and also (increasingly) linked to other industries. I'd hate to be selling enterprise software to property developers right now, but love to be a start-up connecting companies facing administration with experts to turn them around.

So is it common to have a tech boom (I'll get to bubble later) coming out of a recession, leading the way? Yes. Recessions force businesses and consumers to improve efficiencies. They are also times when large corporates 'trim the fat', which often leads to talented people being out of work. Talented people (starting their own business, or applying their talent to aforementioned efficiency demands) create opportunities and value - necessity is the mother of invention. I'm chasing sources now, but can point to businesses like HP and Cisco, and even those that came out of the 70s recession (MS and Apple) as having benefited from the recessionary mindset.

Does that means it's common to have a Bubble? Probably not. People are looking for efficiencies, but they don't necessarily have a lot of money to throw at the solutions - and a lot of money is what creates a bubble.

Does the rise of the VC over the past 15 years means that liquidity for investment during a recession now exists and we have a bubble? I think it's more likely that what we're seeing is a growth period, heading into a boom, and while some companies may prove to be over-priced it's not an industry bubble.

I don't see a "tech" bubble, just (maybe) a social media one.

Two Words: Demand Media

You have an entire company that is based on gaming google that ready to be publicly traded. And next you have AOL buying the Huffington Post which is designed to cheat actual newspapers out of pageviews — something that Google could change in a minute. I was around for the original dot.com bomb and this smells exactly the same.

The winners will be the companies who survive: My bet is on Facebook. But I'm not sure that I'd bet on Groupon or Twitter. By the way what makes Facebook special isn't the technology but the team.

Perhaps tech is the strongest future financial bet in business.

I for one am sick of seeing, day in, day out, a new start up that has raised 20 million in funding from doing nothing. Also, crazy valuations put on companies that don't turn a profit. Generally in business, a company is worth its annual turnover if a sale was going to happen. How are companies that are turning over 0 worth 15 billion?

I think everyone has forgotten about the .com crash 10 years ago and thats where all this crazy investment is coming from. Google offering 6 billion for Groupon, then Groupon turning it down??

I think the only thing that would not describe this as a bubble, is the exeprience of the last bubble and what it has taught us. We have learned now what the "internet" is. We have learned its boundaries (as such) and therefore we can make a reasonable evaluation on what the next "big thing" is and whether it will all come crashing down.

I for one, slag Facebook off to death. I think Mark Zuckerburg is a robbing bastard that stole someones idea and ran with it himself. The thing is, it's the ideas that he didn't steal that make him and the site brilliant. Facebook too did not have a business model and even after creating the advertisting it did not do much. Now, when Facebook started doing targeted advertising and to a greater extent, the new location based advertising, that's when it became brilliant in my eyes. These non-profit start ups that eventually find a business model that works are where the real treats are and its the fact that these startups are finding a business model that makes this a new era, rather than a bubble.

To coin a phrase, its the face of things to come. "The future internet defined"

Now all I need to do is find a stupidly easy idea and make money from it so I can stop being jealous already.

no. there is no bubble.

that means there's nothing to pop. the first time around there was no plan for making money and there were hordes and hordes of companies throwing ridiculously expensive spaghetti at the wall to see if it stuck. everyone and their dog was filing for an ipo.

this time around?

there are relatively few companies with ridiculous valuations... and guess what? they're all making money. and tons of it. for god's sake, even twitter started turning a profit in '09. groupon? $800 million and more in annual revenue is a just fine pe ratio for their valuation. their financials make sense. people are paying for their services. and all those companies not making money yet are bootstrapping on next-to-nothing rather than taking on tons of investment.

it's different this time because it's not about the squishy-touchy-feely "we know better." you can't count on people knowing better. no, it's different because there's real revenue and real business models involved.

bubbles happen when there's no income to back wild speculation.

companies are offering percieved-as-valuable services and are getting paid for it.

they're primarily taking investment for expansion, not runway extension.

most of the money is from private investors instead of zillions of get-rich-hungry public speculators from an ipo.

i mean, it's only natural for information-based companies (instead of say... webvan) to go from 0-60 faster than we've ever seen in an environment where information is enabled to go from 0-60 faster than ever in recorded history.

things are fine, folks. back away from the stupid "bubble" panic button.


It's hard to say what exactly is happening right now, but I don't think there's much of a reason to expect an industry wide "pop" soon. As mkr-hn said, the companies are certainly more responsible now than a decade ago, and despite the seemingly outrageous valuations of companies like Facebook, Twitter, and Zynga, there are equally as many reasonable valuations for smaller, still successful, tech companies.

I will not refer to an economy bubble but to a general trend, so this won't be a direct answer to your question.

More & more startups are build around shuffling data between few existing big players in the social media market. The question is: are these "base" players really offering its customers something which would improve the quality of their lives? Other than a warm fuzzy feeling of being "connected"? Personally I doubt it.

The example: Flightcaster: a concrete quality given to its users. This is, as PG reminded few times, called: wealth. Congrats here.

Some startup X which does something with your Twitter or Facebook data: well it may be cool according to the current fashion, but its real value is very volatile, unmeasurable and virtual.

So if you're in the first group, you're safe.

If you're in the second group and base your value on a virtual value of other services who in turn are based on some premise or belief, my guess is you're doomed.

To remind everyone:

An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"

I think most people here use it to mean "too much money in companies of questionable profitability."

Dictionaries are nice, but even they warn that they're descriptive, not prescriptive. Even a comprehensive dictionary will miss definitions in narrow contexts like tech investment.

Bubble means what? Tech IPOs? Commodity prices?

Tech bubble; I edited the headline.

Even if there was a bubble, you are talking about early stage investment that probably means there is $250M instead of $100M - previously the bubble was in the late stage where there was $15Bn instead of $1.5Bn. Huge difference.

Not a bubble. Relatively few high valuation investments do not make a bubble.

I think there is an inverse correlation between the likelyhood of a bubble versus the amount of people talking about a potential bubble. Perhaps almost by definition.

The headline number doesn't have to be big for there to be overvaluation going on en masse. What about the hundreds of early-stage fundings going on right now? I don't think there's been a sudden explosion in the number of good companies being started - just a huge increase in the number of investments that angels and VCs are willing to make. That's a sign of a bubble

Every year new and old businesses go bust. Bubble or no bubble. Good economy or bad economy. Take the average joe, pit him against Lebron James in a half court shoot out, first one who makes a basket wins, the smart money would be on Lebron but its not a stretch to think that Joe would sink it first. In the past bubble bust we didnt know Lebron from the Joes, now we know. We know the skillful people in the space, yes Joe will occasionally sink the basket first, but over time Lebron will deliver. This net growth is not a bubble, yes companies will bust but the Lebrons will still be ballin.

I'm a pessimist and spotted every recent bubble. What is a bubble? It's when value becomes detached from "objective" financial models. This may be the case for a few high-flying businesses right now (Twitter?), but not widely. The recent funds from Goldman and JP may push valuations for Facebook & Twitter beyond reason because they are chasing a few shares in private markets. But throwing a million $s at a few stupid startups isn't a bubble. That's the VC industry buying lottery tickets. I don't think there's a bubble. There's just a little excitement in social media and mobile apps.

It really depends on what you mean by a bubble.

The classic example of a bubble is the Tulip-mania of the 17th century [1].

The dot-com bubble was ultimately caused by a system awash with dumb money where even the most ludicrous ideas were getting funded. It was a house of cards that eventually came down. It earns its bubble label because two things happened:

1. Funding dried up to the point that legitimate businesses couldn't get funded or failed; and

2. The ramifications of the bubble extended far beyond dot-com companies.

Do we have something like that now? IMHO no. But I think we do have a valuation bubble of sorts. The system is awash with money (particularly Russian money) but what you have to remember is that we're still talking about far less money than in 2000.

In 2000 there were no angel rounds (per se) and companies weren't bootstrapped or funded on $250k or less. It was pretty much straight to a $5m+ Series A due to the (then) high costs of servers, software licenses and bandwidth.

Now you can build a prototype of something for as little as $10-50K. Infrastructure costs are almost zero (for a prototype). The only major cost left really is developer time and $250k will pay for 2-3 developers for a year (at a mix of salary+equity). That same venture would've required an order of magnitude more money in 2000.

So I think what you'll see is that a lot of angels will lose their shirts in the next few years or simply get poor returns. The same applies to the lower end of seed funds. But I don't think funding will dry up to the same extent simply because the market has many more participants, we're talking about far less money (both in total and per investment) and the barrier to entry is so much lower than it used to.

Now, this may translate into a problem where angel-funded companies can't get Series A/B funding and thus fail but with many companies reaching profitability with very small amounts of money the only real impact will be (IMHO) consolidation (today we have some significant players--Google, Facebook and Apple for example--swimming in cash and ready to write big checks even for talent acquisition) and the adoption of more lean-and-mean approaches, which can hardly be a bad thing.

Where ordinary investors could really lose out is on companies like Facebook. The early investors will (and have) made out like bandits but honestly I can see that bubble bursting at some point in the future.

[1]: http://en.wikipedia.org/wiki/Tulip_mania

No it's not a bubble. Sure some companies are trading at absurd valuations: Facebook, Groupon but there is not this froth of worthless companies like there was in the .com boom. Airmailing dog food across the the country, indeed. One difference is that it is much more difficult to do an IPO these days (for better or worse). Another is that entrepreneurial experiments these days cost far less than 10 years ago, YC now, vs VC's then. The bubble this time around was financial with another due in 10-15 years.

Silicon Valley has always had boom/bust cycles. What's happening now is part of the same pattern that has been going on in the Valley since the '50s.

Yes, we're in a boom.

But because the last boom created a stock market bubble, it's temping to assume that boom==bubble. I don't think that's true in this case, as bubbles have a significant psychological component that I don't see in the current boom:


"Something's going on and it's likely going to have pretty significant (negative) consequences" -- I feel like this is the best answer b/c much of the problem has happened behind closed doors. The real estate boondoggle and the dot-com bust required a tremendous amount of public participation to grow to the scale that each did. I hope investors (both professional and hobbyist) are very careful with each of these soon-to-be public companies. If not... then def "Yes we're in another bubble".

The bubble is rebuilding in Tech as the QE money finds its way into the market through VC funds, while banks are hesitant to lend their freshly printed reserves for house mortgages.

Its absolutely a bubble.

When people invest $10M in the next social tag-me-too mobile app, then yes, we are in a bubble that will pop after some get-rich-quick IPOs in the next couple of years.

Facebook is not the black box many people think it is. Maybe $60B valuation isn't all that crazy, when you compare it to Google. Facebook has a huge share of internet (7%), about the same as Google. And even though Facebook ads are a colossal failure, most people believe there is revenue there somewhere and we can look to Google for an indication of revenue potential from commanding that many eyeballs.

Google had revenue of $29B in 2010 and market cap $201B.

OK well there is obviously a lot of investment in tech right now. The key question is how is it being funded?

If it's being funded by savings then fine when you lose your savings but that's all.

If it's being funded by debt then that's really bad as banks start taking a hit and they're already basically insolvent.

I'm not terribly concerned about it but it's possible some investors will get burnt out again on the sector but they'll come back when new opportunities arise.

It's all cylical, always has been, always will be. Where else are you going to put your cash.....the bank so you can 1.5%? Or how about some realestate?

No two bubbles are the same and I agree with a lot of the things people are saying about the differences between now and the dot com bubble. But I think there's plenty of evidence of angels and various successful startups mafias pumping up valuations in the Silicon Valley web startup world. The good news is that the damage is likely to be a lot more localized this time.

Bubble for major funded consumer websites only?

I think the social websites that have made no money, and haven't thought about monetizing are the ones that have suffered.

Think the difference between now and 2000 is you may need to prove you can make some money now, not just get uber traffic.


Scroll to the very button of this screen, hover over the "Green certified website" badge. It's pulsating, what is this? 1997? Click and you'll delighted with the worst pile of steaming bullshit ever, along with some incomprehensible infographics that don't even look good. This is a Y Combinator backed venture.

Yes, we're in a bubble.

Just for arguments sake, let's say we are in a bubble. Isn't that a great thing for entrepreneurs wanting to startup or get additional funding? Does that mean we should put the pedal to the metal now instead of waiting for a potentially bad funding environment post-burst?

Selective bubble market. Zynga and GroupOn making tons of real physical money and being valued at something like 25X earnings isn't a bubble. But absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble.

absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble.

That's not a bubble; that is just overvaluation of a couple of companies. "Bubble" implies that the whole of a sector is wildly overvalued. "Selective bubble" is an oxymoron.

A bubble can describe anything that trades significantly above its net asset value. Investors are overvaluing (in the billions) tech companies with no revenue or business model. The bubble just isn't industry-wide yet.

I watched a video today of someone saying we are heading toward an unavoidable train wreck. http://www.youtube.com/watch?v=-r1XeE-MQV0 (he loses his cool, be warned)

I'm not sure there's a bubble, but if everyone on HN just pretends there is one and we say the word "bubble" a lot in major publications, then maybe we can despeculate technology investments and invest in them ourselves...

From where I'm standing I don't see any evidence that a technology bubble is taking place (actually the reverse). Perhaps there will be a bubble emerging in the next few years, but that's always hard to forecast.

If it is a bubble, then what ( as a software developer ) should I do? I don't work for any of the overvalued companies, so changing jobs isn't a good option. I don't own any stock in them, so I can't sell it.

Something negative is definitely happening. I don't think it'll look like the classic bubbles that we've seen (as a matter of fact all bubbles are different). But at the very least a predict a backlash.

I don't think there's a bubble. But I'm getting seriously bored of social analytics, location-based advertising and glorified todo list startups.

There's so many more interesting problems to solve!

Even if some of these name brand companies deserve these high valuations, there is enough stupid/speculative/me-too money that will follow and create a bubble.

Malinvestments wreck the economy... http://www.youtube.com/watch?v=d0nERTFo-Sk

bubble. The embedded and device software are always a year or two out of step with the rest of the economy so the rescission does not matter.

New 3D-TV's, faster broadband, IPTV, tablets, smart phones , home networks for all and cheap always on computing are changing tech and no-one knows how this is going to work out or settle down.

Lot's of people going to make money, more are going to guess wrong and get hurt.

The entire financial sector and large parts of the economy are a bubble but it doesn't matter unless people panic over it.

It does matter, because it means huge amounts of capital is being mis-allocated - that's money that could be better invested elsewhere, assuming those sectors are in fact overvalued.

Oh, true. I meant only in the sense of market stability which is above all psychological.

We're (almost) always in a bubble. The important question is "when will this bubble pop and the next one start".

although i think we are in a bubble, you never know where the top is. we are only 1/2 way up on the nasdaq from the 2000 high disregarding inflation.


this s&p also has room to go


Yes, bubble. Apple worth $100 billion more than MS or Google? That's a bubble.

Apple's revenue and real growth justifies that valuation, easily.

It's not a bubble yet. We still have dead tulips hanging around.

This time is different!

Big time bubble

So many optimists on this board, talking about 'the pop won't be as devastating this time'.

This time:

- 30% of mortgages are underwater http://money.cnn.com/2011/02/09/real_estate/underwater_mortg...

- U6 rate for Jan 2011 is 16.10 percenthttp://www.congress.org/soapbox/alert/25908506

- labor force participation rate at 64.2% http://www.zerohedge.com/article/labor-force-participations-...

- 43 Million Americans on food stamps http://blogs.wsj.com/economics/2011/02/02/some-43-million-am...

In 2001:

- 66% labor force participation http://www.zerohedge.com/sites/default/files/images/user5/im...

- 8% for U6 unemployment http://www.shadowstats.com/alternate_data/unemployment-chart...

- 17 Million on food stamps http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamp...

Oh, and income stayed relatively the same, http://www.davemanuel.com/median-household-income.php while food prices doubled or tripled http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/chart-suga....

Pretty sure that once this pension/money printing funded tech bubble bursts, it will hurt even more this time.

This kind of armchair economics is surprisingly popular here, given that HN has a smart community. Sure, the economy is worse right now. But when you say that it will hurt "once the pension/money-printing funded tech bubble bursts," well, what does that even mean?

The Federal Reserve is printing money and handing it to VCs? That's not right, banks have very high borrowing requirements and won't just lend money out freely. [0]

Retirees' pensions are going to explode when the bubble pops? Tech stocks only gained 2% last year during a strong year for the S&P 500. [1] Meanwhile, the companies in question are all private, so no pensions should be involved.

You have a nice if-then statement going, but the "if" is the ultimate question here. You can't just assume it away.

[0] http://www.minneapolisfed.org/bb/ (see December and January Beige Books) [1] http://seekingalpha.com/article/231109-s-p-500-sector-perfor...

Pension and endowment funds represent some of the largest VC LPs.

Source? Example? I'm curious.

Goldman Sachs has access to the Federal Reserve's discount window.

Banks do not use the discount window unless they are about to fail. GS stock would tank if they went to the window, as any other bank should provide sufficient liquidity. There is no clear mechanism for Goldman to take money from the Fed and invest it in Facebook.

Also, Goldman has used the investment bank version of the window in the past, but they've already repaid all loans. [0]

[0] http://en.wikipedia.org/wiki/Goldman_Sachs#Use_of_Federal_Re...

I can't see how these two sets of data correlate into a massive bubble popping, just that the reality is that the US is still trying to come out of the results of the last bubble bursting...as an example, since the fall of 2008, unemployment has not recovered, so what, exactly, is about to burst?

I would think that hyper inflated values and unsustainable YOY gains in valuation for asset classes (stocks, real estate, internet companies) would be more of an indicator of a bubble.

But don't you think we're seeing those in commodities and many stocks, including but not limited to tech stocks? You wouldn't see it in real estate, because popped bubbles don't reinflate. Whenever I see a company like Cisco drop huge %'s overnight not on a loss, but on "somewhat worse than expected" revenue, my alarm bells start going off.


"Cisco's (CSCO, $19.04, -$3.00, -13.61%) fiscal second-quarter profit declined 18% with margins sliding for a fourth consecutive quarter as the company faced increasing pricing pressure in its core products and sold less profitable consumer products. "

I'm seeing increased competition in a rough market driving profits down, not the warning bells of a pop.

I agree that the overall situation is pretty dire. In the grand scheme of things, the amount of money exposed in the tech startup bubble is pretty small -- and it's disproportionately from certain groups of people (wealthy tech startup veterans, Goldman Sachs clients). But California's counting on the tax revenue so it could catch a lot of others up in it as well. We shall see ...

But California's counting on the tax revenue

Says who? California is counting on the tax revenue generated by Facebook and Zynga? Seriously?

Yeah, it probably doesn't count on them. But every last bit helps and remember that when the bubble pops even innocent tech companies will be affected, not only those with crazy valuations.

when the bubble pops even innocent tech companies will be affected

How so? How will the "bubble" pop? None of the companies in question (Groupon, Facebook, and Zynga) are public. How would a loss of investor confidence in those private companies take down all technology companies?

If you're referring to the Goldman investment in Facebook: even at $50 billion, Facebook's valuation is peanuts in contrast to the technology economy. You may someday see ex-Facebook employees out on the streets with resumes, and some angry investors, but certainly this does not at all resemble 2000, when nearly every mutual fund and private investor had a stake in profitless dot-com companies that imploded.

there are many ways they will be affected, to list a few:

- FB, Zynga etc. use a lot of technology infrastructure. When that growth ceases, a lot of hardware vendors, service etc co's will be affected

- when/if bubble pops, it will affect investor confidence - lower if any valuations for new start-ups in that space and less cash for existing companies

- even stricter regulatory scrutiny (SOX will be peanuts compared to legislations that will be introduced after this bubble pops)

etc etc

Agreed, the amount of money exposed is smaller. But remember, the economy is drastically smaller as well.

Drastically smaller? If you're talking about the US economy, GDP is $5 trillion larger than in 2001. That's a 50% increase.

[0] http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk...

Inflation. Gold is 7X today, wheat is 3X today, regular gas is 2X today.

True, I read "current" as "constant."

Even using constant dollars, though, our economy is 18% larger between then and now. That's not "drastically" smaller. [0]


How much gas and wheat do you consume regularly as a proportion of your income? What about gold?

That first statistic is misleading. 30% of the homes currently financed by a mortgage are underwater. There are many homes owned outright so that percentage is much lower (about 17%).

Also, food stamp program participation lags economic growth by a fairly large timeframe. See http://bit.ly/igTa7W

Finally, I'd recommend using zerohedge as a primary source. That's like citing Fox News or Mother Jones for politics. Instead, go to the source that they scraped their info from for less biased data.

Not a bubble. A small subset of tech companies are over-valued, yes. Most notorious are Facebook, Groupon, possibly Twitter, Zynga, etc. But most are not. And a greater proportion of startups are 100% bootstrapped and then kept as lifestyle cash cows or flipped early in small private exits. Many companies have high caps but probably valued about right and they have real products and revenue streams, like Apple, Amazon, Microsoft, Google, IBM, Oracle, Cisco, etc.

I think that a couple factors are contributing. One, returns on safe investments like bank savings accounts are basically zero. Two, there's a lot of great free info on the web now for people to self-educate especially regarding entrepreneurship and angel investment, as well as more tools like AngelList and more social event series like Meetups and code jams and contests that help facilitate bring people together and leading to new enterprises and deals. Third, the top 10% wealth-wise have even more discretionary money now than they did in the 90's, and that combined with an increasing sense that the US salaryman has no guaranteed future anymore, so we we have to increasingly look to making FU/retirement from entrepreneurship and investments rather than doing the 9-to-5-til-yer-60 thing.

word of caution: usually by the time something is referred to as a bubble, it is already too late to get in or out :)

so let's brace ourselves for an impact!

Leave it to pg to keep a cool head:

There are some concerns about a new budding tech bubble as some startups have reached titanic valuations — Twitter, for example, was recently reported to be worth around $10 billion — without having a business model nailed down. But those cases are few and far between, and there are fewer investors in those types of companies than there were in the late 90s, Graham said. The amount of money companies are raising today — relatively speaking and adjusted for inflation, naturally — is less than what companies were raising during the last tech bubble, he said.

I don't think were in a "bubble"

Nobody is investing vast amounts of money into people with absolutely no business plan. Its not the "were gonna need 100 servers" only to realize there are 4 users... total. Services like AWS keep costs down allowing scalability on demand vs up front prep for doomsday.

I see groupon as a bubble in itself. But that is one business.

I think the world will see it's first Trillion dollar company within 10 years. I also don't think that company has been created yet.

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