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.
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?
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.
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.
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.
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.
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
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.
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?
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 industr...
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.
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.
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.
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?
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.
[Citation needed] We've seen some headlines about exploitative sales practices, but fundamentally, Groupon is an advertising company, and tons of small businesses are signing up and willingly paying the prices they charge. Whether or not it's a good decision for each company, it seems a bit harsh to say categorically that it's harmful.
How many businesses have blown big dollars on traditional ads with low ROI? Does that make traditional advertising harmful?
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.
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.
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...
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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[ 4.2 ms ] story [ 297 ms ] thread1: 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.
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?
I'm sure someone will be along with specific advice shortly.
I think the real bubble is bond market - which is causing froth all over the market.
That is in general, but I think we saw a few very strange things in the latest couple of months.
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.
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 industr...
And every time, people believe it.
'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.
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.
A weekend sketch can be enough to get that team.
It's good atleast that people are talking about this though. I wonder how much discussion there was about a possible bubble in 99.
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.
How many businesses have blown big dollars on traditional ads with low ROI? Does that make traditional advertising harmful?
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.
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...
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.
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.
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"
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.
http://www.google.com/finance?chdnp=1&chfdeh=0&chdet...
'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.
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.
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:
http://en.wikipedia.org/wiki/Economic_bubble#Social_psycholo...
so let's brace ourselves for an impact!
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.
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?
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
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.
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.
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.
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.