Not overall. There may be a bubble in certain small areas of tech, but there is nothing happening right now that equals the mania of the late 1990s.
I was there, and nope. Totally different economy and culture. To have a bubble like that you need optimism, and I have never in my lifetime seen a greater sense of hopelessness and pessimism and anger. Outside of coastal alpha cities like SF, NYC, Boston, LA, etc., the mega-recession of 2008 onward did not end. There is no hope, no opportunity, and everything is rising but wages. I've spoken to people who were older in the 70s and early 80s and some have compared it to then, but I have a friend who remembers the 70s well and he insists this is worse.
We may be in a sort of bubble, but it's not centered on tech or specific to tech. We are at a time in history where unprecedented amounts of money are sloshing around at the top and it isn't 'trickling down' much via ordinary routes like wages. As a result, there is perhaps something like a bubble in the sorts of assets that kind of wealth imbalance inflates: real estate, bonds, stocks, and yes perhaps other forms of investments rich people buy like private equity.
If there's a bubble in angel or VC activity, it's a shadow of that larger imbalance rather than something centered on tech in particular. There's a ridiculous amount of money at the top that doesn't know where to go, and some of that is going to be available to inflate startup valuations among many other things.
This whole anti-"negativity" thing is just an attempt to impose Bay Area passive-aggressive culture on every participant in the discussion, even though we "in tech" come from (and ought to come from) all over the world.
It makes me fucking sick that people get downvoted for expressing unpleasant but completely accurate accounts of what is actually going on.
I think you're making an enormous intellectual leap from the data you have (someone with greater than 500 karma clicked a glyph of an inverted pyramid).
api's answer is the most complete response to the question so far.
Not really, api's comment is currently one of the last in this thread, which means that it has a low karma. On the other hand, it is likely that several people upvoted it - I did, and probably people who complain that it was downvoted also upvoted it, which means that it got several downvote - something not attributable to bad luck.
When I made that comment, there were 3 others in the thread. Next time I'll put a timestamp to add context (I'm not being sarcastic, I genuinely recognized the ambiguity)
Curious: how does one discuss negative things without negativity?
Oops... missed a dose of Soma.
You're absolutely right. It's also a way of prohibiting criticism, since it's sort of hard to criticize without... umm... criticizing. I noticed that the policy came into effect after the bizarre "let's regulate CS to prevent killer AI" paranoid psychotic episode that seized this community a few months ago. People criticized that rather sharply, and a number of the recipients of that criticism were very high ranking members of the community.
(I still puzzle about that one. I could forgive such a meme for coming from the Internet's more kooky corners like rense.com but from a site full of people who actually understand such things? I still can't discount the Machiavellian idea that it was a trial balloon for pushing for measures that would deliver a monopoly on high-end CS research to highly funded companies and VC-backed startups.)
Culturally the Bay Area is at least as aggressive as New York, but it's covered with a gloss of hippie veneer appropriated from the counterculture and a lot of politically correct schmaltz. The result is absolutely passive-aggressive. In New York they say 'fuck you,' stab you in the back, and cut you out. In the Bay Area they do the same but with a positive attitude, a talk about seeing the big picture, and well wishes as they send you on your way.
It's also the only place a hyper-elitist top-ten university club of >95% white/asian males could pretend to be a force for diversity, equality, and cultural progress.
I kinda like SoCal. It's also as aggressive as New York. It has a veneer of its own too, but a significantly more transparent one. But the biggest thing I love about LA in particular is that it's a place where the brilliantly intelligent pretend to be stupid. I saw a SpaceX webcast once with this girl who was like ohmygod a rocket scientist. She was even blonde. Like ohmygod here let me show you the, like, importance of the Oberth Effect and why the second stage needs higher specific impulse. The Bay Area is the other way around, which I find irritating... really stupid stuff masquerading as genius. "Here, I'm a 4.0 white male Stanford graduate. Let me show you how I'm changing the world with my app for finding the nearest fried chicken franchise..."
BTW: click on my username and drop me an e-mail @michaelochurch -- if you are in the bay we will need to share a coffee or a beer next time I am up there.
Edit: LOL, got down voted in like five minutes, and on a mostly deserted thread! Is someone running a bot for this?
> how does one discuss negative things without negativity?
Of course there's no rule against negativity on HN. That would be stupid. There's a rule against gratuitous negativity, which is different. That isn't because of any particular thread (we pondered it for a year before we introduced it) or criticism of "high-ranking members". We don't care about that. We care about the quality of discussion on Hacker News. Trying to keep the bottom from falling out on a public forum is harder than it perhaps sounds.
We need some way of making a distinction between negative statements that are civil and substantive, and negative statements that add toxicity to the community. If you can think of a better way to make that distinction, I'd love to hear about it. In the meantime, I doubt that anyone making a good-faith effort to follow this rule is likely to run into trouble on HN.
In flavor, at least, this is different from the '70s. Insane government action is less apparent, e.g. no even-odd days for gas stations in the city (Nixon's wage and price controls were not relaxed for oil and natural gas, and by the late '70s bureaucrats in D.C. were e.g. directing where all refined gasoline went, in farming areas like mine we were swimming in the stuff, cities, not so much).
Inflation was raging, today's 0% or or negative real interest rates are quite different. Screwing up the Cold War was an existential threat, ISIS et. al. are not one. The Limits to Growth meme was stronger and apparently more immediate a threat than Global Warming. Space was a big letdown in that period; if you're watching it today, SpaceX is the biggest thing since Apollo, and likely more consequential (well, Apollo helped us win the Cold War, but really getting out into space will be "bigger").
The Internet and ubiquitous powerful computing (easy access to something with power akin to a Cray 1) are game changers; there's no excitement like there was with the rapid march of microprocessors then, but that was a geek thing until maybe the Apple II. But the Internet ... really, that's such a big thing I can't really grasp how much it's changed the game, despite or perhaps because I have lived it starting from before the launch of the TCP/IP Internet.
You're absolutely right that "everything isn't broken" and some things are better. The problem is that all the better things are mostly not helping ~90% of the population. You do have orders of magnitude better access to information and better gadgets, but that doesn't help you make your bills or plan for retirement (essentially impossible today if you are not rich).
Like I said, generally speaking everything is inflating but wages and technology products. We are in something that I've heard called "in-deflation" -- inflation in everything you need, deflation in everything else, and stagnant wages and employment. I think this is at least as bad as the stagflation of the 70s, though obviously a far different phenomenon.
I'm not completely convinced that this isn't the result of the "limits to growth."
Americans love apocalypses. They think everything will happen suddenly, explosively, in a film directed by J.J. Abrams with a lot of explosions and a plucky hero. The reality is that things like LTG may manifest very slowly and without much fireworks.
Scenario:
Commodities just inflate, and inflate, and inflate, and eat up surplus wealth for all but the top. Surplus wealth at the top then inflates things like real estate. Demand collapses, hollowing out employment and accelerating the whole thing (deflationary spiral). Eventually the middle class is destroyed.
Then assuming a fairly bad case scenario the die-off begins, but also slowly. In the third world it starts first through warfare, revolutions, disease, and starvation. Finally it slowly progress to the "first world" in the form of decreased longevity and increased mortality among the now impoverished majority unable to afford good health care any longer. Since contraception is still available in the first world, birth rates don't spike as they might in poorer places. This saves the developed world from birth spike / death spike Darwinian hell. We go not with a bang but a whimper.
In the end we have falling population, collapsing economies, and a wealthy elite cloistered in a few surviving high-tech mega-cities. These are dystopian police states however -- like Singapore with more police brutality and arbitrary power -- so it kind of sucks for them too. Of course the vast global slum also is a police state, but policed more haphazardly with drones and such.
In the even longer term these too collapse or are overthrown by angry populist revolutions, knowledge is forgotten, and we're back in some kind of dark age. Tall tales are told of the great science and power of the fallen high civilization of old, but also of how its arrogance offended the Gods and brought about its fall... etc.
Unfortunately our high-tech civilization is a one-shot. Fossil fuels and concentrated mineral deposits are now depleted. We fell victim to the same game-theoretic Great Filter as everyone else. See: Fermi Paradox.
--
The above may not occur. The future is hard to predict and complex. But that, I think, is a good expression of how the world looks today and where it looks like it's going. It looks as hellishly pessimistic as the 70s, if not worse.
In the 1990s a rising tide lifted all boats, opportunity was exploding for everyone, and the Internet was going to transform our society for the better and empower everyone. Libertarianism was popular. That wonderful age ended on 9/11/2001, though the writing was on the wall when the dot.com crash started in 2000. Since then I've seen nothing but escalating pessimism and depression among the general public, though the parallel universe alpha cities of the coasts seem partially exempt.
Today the tide is falling but the biggest boats are still rising, opportunity is collapsing for the majority, and the Internet is a surveillance and distraction machine where people look at stupid cat pictures and blob comics while AI profiles them to sell them stuff or manipulate them. Authoritarianism is experiencing...
> We are at a time in history where unprecedented amounts of money are sloshing around at the top and it isn't 'trickling down' much via ordinary routes like wages.
Not sure I would say 'unprecedented' as this has happened before [1]. Perhaps it's time for another New Deal-style intervention.
It is funny reading hacker news from outside the bubble, so to speak. When I hear of this troubling issue of too much money being thrown around by VCs, I do wonder if, while they are at it, they could learn to throw a little further maybe.
I don't personally believe we're in a tech bubble like we saw in the late 90s. At worst the general public isn't at the same risk as we had with all the .com IPOs. There's a lot less liquidity which means that angels and VCs would take a much larger hit.
The entire sequence of events since 2009 has been driven by artificial liquidity support. While consumers may not have acess to credit, VCs are overflowing with cash, and so are many other types of high-net worth and institutional money sources. This creates an odd and un-even playing field, and I think your comment may simply be revealing the view of one hand on the elephant rather than an objective assessment.
Tech is still generally underrated compared to it's importance for society but there is a whole suite of primarily Silicon Valley funded companies whos valuation is based on it's investors alternative views of what value is.
On one hand, companies that espouse the idea that users = value, with no monetization, are probably in line for a correction.
But on the other hand, companies that actually change the way the world will look in 10-50 years (medical technology, energy technology, better AI) are probably going to be worth a lot more once they all get out of their relative beta periods.
I think errors like this are usually a muscle-mind error, not a misunderstanding error. I very frequently type "you're" when what I said in my head was "your". Sometimes I send/post before I notice the mistake.
The crazy one I do a lot (and usually notice after I can no longer edit) is "know" instead of "no", which is definitely a muscle-mind problem; it's not like I think "know" means "no".
"A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation."
Yes but it's not the whole market it's a sub-set of the market IMHO and it's based on the game that a bunch of VCs in Silicon Valley play with each other.
Completely agree. I think that a correction will happen, but not a bust. Also some companies really need to manage their burn rates, but I guess it's the old saying "spend money to make money".
I was going to say no, but the top story on HN right now is a simple web app for measuring mood, which anyone could have been built in about 10 minutes using SurveyMonkey or Formstack. So, if that's noteworthy innovation, maybe we in a bubble.
Keep calm and love tech; envision a world where everyone succeeds and people/companies help each other succeed; and disputes are resolved with civility (Zenefits/ADP, the spotlight is on you!)
1) From a valuation perspective, here are some of the major public tech companies of recent years. If over-inflated valuations are the definition of a bubble these are serious red flags.
2) Ultimately, all economic growth comes from productivity. The major tech companies of now are not focused on productivity - they are social, gaming, and leisure. They generally won't yield the productivity increases of the initial wave of the internet.
We are in a global asset bubble, not specifically a tech bubble. People like to highlight tech valuations because the general public is familiar with the companies.
Click Bait Headline: "COMPANY WITH NO PROFIT WORTH $1.5 BILLION, THE END IS NIGH!"
The valuations are divorced from the future earnings of most of the companies, but so are real estate prices in many cities around the world. So sure, we're in a "tech bubble" but its all part of a shared economic fantasy so it probably doesn't matter.
The perception of the valuations is likewise divorced from the risks associated with the investment. That $150 million for 10% that made the $1.5 billion valuation comes with a liquidation preference, and if the company liquidates for $300 million, the first $150 million (50%) goes to that investor with only 10%. That's not suggesting that 0% return is a success, but it's a lot better than losing $150 million.
From a VC standpoint, liquidation preference lowers the downside risks and while the high valuation makes a 100x homerun return less likely, that's not really the goal of a series D. A potential 10x with a good chance of catching any downside in the liquidation preference is not a dumb investment.
The ironic part about bubbles is that, necessarily, +80% of people believe we're not in a bubble just before it pops. After all, this is the primary reason for a bubble. This means that asking people if we're in a bubble is sort of a measure of the inverse.
One definition of a bubble that my colleges use is an external force that artificially props up values, or put another way a force that if it was removed would see prices crash.
Now consider silicon valley, what happens when a 2001 scenario happens and venture capital money dries up. Ask your self the question, if there was no vc money tomorrow would valuations remain the same, probably not.
Now that's not entirely fair as vc money won't just all go away, but then ask is there more vc money now that before, the answer is yes to to tune of about 5x-10x(estimates differ) more than there was in 1999.
So a more realistic question would be to ask what happens if we removed 5x-10x the funding that we currently have, would prices go down?
The startup market looks alot like the junk bond market in the Milken days. Junk bonds are very risky bonds but they can pay out alot and as long as there is money to roll the debt over into new debt everyone is happy. However, if the market gets jitters then suddenly you go from a scenario where everyone can roll their debt to a scenario where almost no one except for hte "best" junk bonds can get rolled( similar to getting vc in 2001-2004).
ie a bubble doesn't go down gradually, it goes down hard.
Another scary thing for valuations that doesn't get enough air time is the percentage of gains made when a company is private vs when its public. I saw a great tweet when Larry Ellison retired that said something to the effect of final score Oracle shares up 32,000% since it when public. It will be hard for a facebook to return that kind of return to investors over the next 25 years.
It used to be the case that the public markets got alot more of the stock gains than they are getting now. This should scare people as its the public markets that give companies their valuations. If the public markets find that stocks aren't going to have the 20 year gains that they used to have, then money, being like water, will flow to where it can make better gains, which will depress public market prices, which in turn, will push down private market valuations.
This isnt' a short term trend but one to watch, over the next 10 years. I know of a few macro based funds that are very concerned about this.
BONUS off the cuff prediction
We will see a private company start to pay dividends rather than go public in the next 3 years.
TL/DR
- private markets value growth, public markets value profits. You've hit a bubble when you have the largest private companies not being able to produce profits that the public markets expect. Once that happens everything gets "messed up" with the chain of:
- the largest private companies can't go public at their expected valuations leading to
- lower valuations for private companies, leading to
- existing companies not being able to get teh vc capital they were expecting, leading to
- private companies going out of business, leading to
- vc losses, leading to less vc money in the system,
leading to
I wouldn't call it a bubble because bubbles burst all at once. Tech does have value, and some tech companies are actually creating value and seem to be worth every penny of their valuation. I'm talking about the Übers and AirBnBs. I would call it a Gold Rush; everyone thinks if they show up with their pickaxe, they're gonna strike it rich.
I'd say it's more of a froth. Some areas are depressed (relatively), some are about right on target, and some are way overvalued.
In a bubble lots of people become sudden "royalty", but in a froth, only a select few are made into kings.
It's clear that "valuation", as term, is not indicative of the value a company provides/produces, or the market it serves. It's a kind of shared fantasy.
What we keep seeing is that companies with grossly inflated valuations end up M&A'd into a more mature company, and the value that company had is corrected over a couple years to be some fraction of the purchase price.
There's also little longevity for many of these companies. An unmonetized cat picture sharing app gets "valued" at $billions because it's hit some kind of faddish meme growth curve, is bought be Yahoo! or whomever, and then turns to vapor within 6 months. The acquiring companies don't even have enough time to insert their ad network monetization scheme onto the pages before the curve turns upside down.
Meanwhile, the founders of the site are sitting on piles of cash, and go on to angel invest in other bad faddish ideas that have a monetizable life-span of 12 months.
Or other startups form that require as their monetization strategy, for some non-trivial percentage of all humans on the planet to be using their service before they can start skimming profit off of operating expenses. They hit 85% of those metrics, sell or IPO for the GDP of a medium sized European country and everybody is surprised when they have monetization problems.
The Startup->Invest->Value->Sell cycle is broken in several subtle places and it's not clear how to fix it other than for investors to just get smarter and/or have other investment vehicles available to them. Or at least start asking for startups to "start up" with a good business plan in place, and carefully evaluate it for nonsense. But this won't happen so long as the cycle as broken. Uninformed investors, who were trained on what success looks like from their own ridiculous lark of a company fundamentally don't know what a real company looks like.
Meanwhile there are other companies with real ideas, making real money, who are struggling to get valuations at 1xrevenue.
Like anything with money involved, tech startups have become a hit-driven industry, and over the long-term (10-20 years) this is generally bad for everybody.
I do not think we are in tech bubble at least for another 5 years. We have real new products coming one after another across multiple domains like AR, VR, self driving cars, drones and what not.
62 comments
[ 2.1 ms ] story [ 137 ms ] threadI was there, and nope. Totally different economy and culture. To have a bubble like that you need optimism, and I have never in my lifetime seen a greater sense of hopelessness and pessimism and anger. Outside of coastal alpha cities like SF, NYC, Boston, LA, etc., the mega-recession of 2008 onward did not end. There is no hope, no opportunity, and everything is rising but wages. I've spoken to people who were older in the 70s and early 80s and some have compared it to then, but I have a friend who remembers the 70s well and he insists this is worse.
We may be in a sort of bubble, but it's not centered on tech or specific to tech. We are at a time in history where unprecedented amounts of money are sloshing around at the top and it isn't 'trickling down' much via ordinary routes like wages. As a result, there is perhaps something like a bubble in the sorts of assets that kind of wealth imbalance inflates: real estate, bonds, stocks, and yes perhaps other forms of investments rich people buy like private equity.
If there's a bubble in angel or VC activity, it's a shadow of that larger imbalance rather than something centered on tech in particular. There's a ridiculous amount of money at the top that doesn't know where to go, and some of that is going to be available to inflate startup valuations among many other things.
Is it just because of the negative tone? I mean, this post is asking for opinions, and the commenter simply gave his opinion....
It makes me fucking sick that people get downvoted for expressing unpleasant but completely accurate accounts of what is actually going on.
api's answer is the most complete response to the question so far.
Oops... missed a dose of Soma.
You're absolutely right. It's also a way of prohibiting criticism, since it's sort of hard to criticize without... umm... criticizing. I noticed that the policy came into effect after the bizarre "let's regulate CS to prevent killer AI" paranoid psychotic episode that seized this community a few months ago. People criticized that rather sharply, and a number of the recipients of that criticism were very high ranking members of the community.
(I still puzzle about that one. I could forgive such a meme for coming from the Internet's more kooky corners like rense.com but from a site full of people who actually understand such things? I still can't discount the Machiavellian idea that it was a trial balloon for pushing for measures that would deliver a monopoly on high-end CS research to highly funded companies and VC-backed startups.)
Culturally the Bay Area is at least as aggressive as New York, but it's covered with a gloss of hippie veneer appropriated from the counterculture and a lot of politically correct schmaltz. The result is absolutely passive-aggressive. In New York they say 'fuck you,' stab you in the back, and cut you out. In the Bay Area they do the same but with a positive attitude, a talk about seeing the big picture, and well wishes as they send you on your way.
It's also the only place a hyper-elitist top-ten university club of >95% white/asian males could pretend to be a force for diversity, equality, and cultural progress.
I kinda like SoCal. It's also as aggressive as New York. It has a veneer of its own too, but a significantly more transparent one. But the biggest thing I love about LA in particular is that it's a place where the brilliantly intelligent pretend to be stupid. I saw a SpaceX webcast once with this girl who was like ohmygod a rocket scientist. She was even blonde. Like ohmygod here let me show you the, like, importance of the Oberth Effect and why the second stage needs higher specific impulse. The Bay Area is the other way around, which I find irritating... really stupid stuff masquerading as genius. "Here, I'm a 4.0 white male Stanford graduate. Let me show you how I'm changing the world with my app for finding the nearest fried chicken franchise..."
BTW: click on my username and drop me an e-mail @michaelochurch -- if you are in the bay we will need to share a coffee or a beer next time I am up there.
Edit: LOL, got down voted in like five minutes, and on a mostly deserted thread! Is someone running a bot for this?
Of course there's no rule against negativity on HN. That would be stupid. There's a rule against gratuitous negativity, which is different. That isn't because of any particular thread (we pondered it for a year before we introduced it) or criticism of "high-ranking members". We don't care about that. We care about the quality of discussion on Hacker News. Trying to keep the bottom from falling out on a public forum is harder than it perhaps sounds.
We need some way of making a distinction between negative statements that are civil and substantive, and negative statements that add toxicity to the community. If you can think of a better way to make that distinction, I'd love to hear about it. In the meantime, I doubt that anyone making a good-faith effort to follow this rule is likely to run into trouble on HN.
LOL: downvotes
Inflation was raging, today's 0% or or negative real interest rates are quite different. Screwing up the Cold War was an existential threat, ISIS et. al. are not one. The Limits to Growth meme was stronger and apparently more immediate a threat than Global Warming. Space was a big letdown in that period; if you're watching it today, SpaceX is the biggest thing since Apollo, and likely more consequential (well, Apollo helped us win the Cold War, but really getting out into space will be "bigger").
The Internet and ubiquitous powerful computing (easy access to something with power akin to a Cray 1) are game changers; there's no excitement like there was with the rapid march of microprocessors then, but that was a geek thing until maybe the Apple II. But the Internet ... really, that's such a big thing I can't really grasp how much it's changed the game, despite or perhaps because I have lived it starting from before the launch of the TCP/IP Internet.
Like I said, generally speaking everything is inflating but wages and technology products. We are in something that I've heard called "in-deflation" -- inflation in everything you need, deflation in everything else, and stagnant wages and employment. I think this is at least as bad as the stagflation of the 70s, though obviously a far different phenomenon.
I'm not completely convinced that this isn't the result of the "limits to growth."
Americans love apocalypses. They think everything will happen suddenly, explosively, in a film directed by J.J. Abrams with a lot of explosions and a plucky hero. The reality is that things like LTG may manifest very slowly and without much fireworks.
Scenario:
Commodities just inflate, and inflate, and inflate, and eat up surplus wealth for all but the top. Surplus wealth at the top then inflates things like real estate. Demand collapses, hollowing out employment and accelerating the whole thing (deflationary spiral). Eventually the middle class is destroyed.
Then assuming a fairly bad case scenario the die-off begins, but also slowly. In the third world it starts first through warfare, revolutions, disease, and starvation. Finally it slowly progress to the "first world" in the form of decreased longevity and increased mortality among the now impoverished majority unable to afford good health care any longer. Since contraception is still available in the first world, birth rates don't spike as they might in poorer places. This saves the developed world from birth spike / death spike Darwinian hell. We go not with a bang but a whimper.
In the end we have falling population, collapsing economies, and a wealthy elite cloistered in a few surviving high-tech mega-cities. These are dystopian police states however -- like Singapore with more police brutality and arbitrary power -- so it kind of sucks for them too. Of course the vast global slum also is a police state, but policed more haphazardly with drones and such.
In the even longer term these too collapse or are overthrown by angry populist revolutions, knowledge is forgotten, and we're back in some kind of dark age. Tall tales are told of the great science and power of the fallen high civilization of old, but also of how its arrogance offended the Gods and brought about its fall... etc.
Unfortunately our high-tech civilization is a one-shot. Fossil fuels and concentrated mineral deposits are now depleted. We fell victim to the same game-theoretic Great Filter as everyone else. See: Fermi Paradox.
--
The above may not occur. The future is hard to predict and complex. But that, I think, is a good expression of how the world looks today and where it looks like it's going. It looks as hellishly pessimistic as the 70s, if not worse.
In the 1990s a rising tide lifted all boats, opportunity was exploding for everyone, and the Internet was going to transform our society for the better and empower everyone. Libertarianism was popular. That wonderful age ended on 9/11/2001, though the writing was on the wall when the dot.com crash started in 2000. Since then I've seen nothing but escalating pessimism and depression among the general public, though the parallel universe alpha cities of the coasts seem partially exempt.
Today the tide is falling but the biggest boats are still rising, opportunity is collapsing for the majority, and the Internet is a surveillance and distraction machine where people look at stupid cat pictures and blob comics while AI profiles them to sell them stuff or manipulate them. Authoritarianism is experiencing...
Not sure I would say 'unprecedented' as this has happened before [1]. Perhaps it's time for another New Deal-style intervention.
[1] https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite...
This presentation from Lou Kerner has some good insights. http://www.slideshare.net/loukerner/bubble-cartoon
The entire sequence of events since 2009 has been driven by artificial liquidity support. While consumers may not have acess to credit, VCs are overflowing with cash, and so are many other types of high-net worth and institutional money sources. This creates an odd and un-even playing field, and I think your comment may simply be revealing the view of one hand on the elephant rather than an objective assessment.
Tech is still generally underrated compared to it's importance for society but there is a whole suite of primarily Silicon Valley funded companies whos valuation is based on it's investors alternative views of what value is.
On one hand, companies that espouse the idea that users = value, with no monetization, are probably in line for a correction.
But on the other hand, companies that actually change the way the world will look in 10-50 years (medical technology, energy technology, better AI) are probably going to be worth a lot more once they all get out of their relative beta periods.
You're looking for "its," which is a possessive adjective.
"A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation."
Source: https://en.wikipedia.org/wiki/Stock_market_bubble
Tulips remained quite lovely flowers and the south sea had pleasant beaches throughout their respective bubbles.
...or rather based upon it's investors ability to convince outside crowd of what the value is.
As another commentator pointed out... valuation vs price.
Symbol, EPS, P/E P, -0.24, LNKD, -0.36, Z, -2.05, GRPN, -0.08, ANGI, -0.07, ZNGA, -0.24, FB, 1.00, 81.52 YELP, 0.32, 137.07 KYAK, 0.43, 92.39 TRLA, -1.82, TWTR, -0.98, KING, 1.90, 7.62 GPRO, 0.77, 75.27 ETSY, -1.27, BOX, -1.52, GRUB, 0.36, 103.92 SHOP, -0.28,
2) Ultimately, all economic growth comes from productivity. The major tech companies of now are not focused on productivity - they are social, gaming, and leisure. They generally won't yield the productivity increases of the initial wave of the internet.
Click Bait Headline: "COMPANY WITH NO PROFIT WORTH $1.5 BILLION, THE END IS NIGH!"
The valuations are divorced from the future earnings of most of the companies, but so are real estate prices in many cities around the world. So sure, we're in a "tech bubble" but its all part of a shared economic fantasy so it probably doesn't matter.
From a VC standpoint, liquidation preference lowers the downside risks and while the high valuation makes a 100x homerun return less likely, that's not really the goal of a series D. A potential 10x with a good chance of catching any downside in the liquidation preference is not a dumb investment.
It is possible that we are just below the top of the 8 (not 7) year cycle (see my explanation boom / bust cycles @ https://news.ycombinator.com/item?id=9565624).
One definition of a bubble that my colleges use is an external force that artificially props up values, or put another way a force that if it was removed would see prices crash.
Now consider silicon valley, what happens when a 2001 scenario happens and venture capital money dries up. Ask your self the question, if there was no vc money tomorrow would valuations remain the same, probably not.
Now that's not entirely fair as vc money won't just all go away, but then ask is there more vc money now that before, the answer is yes to to tune of about 5x-10x(estimates differ) more than there was in 1999.
So a more realistic question would be to ask what happens if we removed 5x-10x the funding that we currently have, would prices go down?
The startup market looks alot like the junk bond market in the Milken days. Junk bonds are very risky bonds but they can pay out alot and as long as there is money to roll the debt over into new debt everyone is happy. However, if the market gets jitters then suddenly you go from a scenario where everyone can roll their debt to a scenario where almost no one except for hte "best" junk bonds can get rolled( similar to getting vc in 2001-2004).
ie a bubble doesn't go down gradually, it goes down hard.
Another scary thing for valuations that doesn't get enough air time is the percentage of gains made when a company is private vs when its public. I saw a great tweet when Larry Ellison retired that said something to the effect of final score Oracle shares up 32,000% since it when public. It will be hard for a facebook to return that kind of return to investors over the next 25 years.
It used to be the case that the public markets got alot more of the stock gains than they are getting now. This should scare people as its the public markets that give companies their valuations. If the public markets find that stocks aren't going to have the 20 year gains that they used to have, then money, being like water, will flow to where it can make better gains, which will depress public market prices, which in turn, will push down private market valuations.
This isnt' a short term trend but one to watch, over the next 10 years. I know of a few macro based funds that are very concerned about this.
BONUS off the cuff prediction
We will see a private company start to pay dividends rather than go public in the next 3 years.
TL/DR - private markets value growth, public markets value profits. You've hit a bubble when you have the largest private companies not being able to produce profits that the public markets expect. Once that happens everything gets "messed up" with the chain of:
- the largest private companies can't go public at their expected valuations leading to
- lower valuations for private companies, leading to
- existing companies not being able to get teh vc capital they were expecting, leading to
- private companies going out of business, leading to
- vc losses, leading to less vc money in the system, leading to
- a "virtuous" cycle that deflates the bubble.
Maybe I should start saving up and make a back up plan for life outside tech. But I have none. Ah well , that's life.
In a bubble lots of people become sudden "royalty", but in a froth, only a select few are made into kings.
It's clear that "valuation", as term, is not indicative of the value a company provides/produces, or the market it serves. It's a kind of shared fantasy.
What we keep seeing is that companies with grossly inflated valuations end up M&A'd into a more mature company, and the value that company had is corrected over a couple years to be some fraction of the purchase price.
There's also little longevity for many of these companies. An unmonetized cat picture sharing app gets "valued" at $billions because it's hit some kind of faddish meme growth curve, is bought be Yahoo! or whomever, and then turns to vapor within 6 months. The acquiring companies don't even have enough time to insert their ad network monetization scheme onto the pages before the curve turns upside down.
Meanwhile, the founders of the site are sitting on piles of cash, and go on to angel invest in other bad faddish ideas that have a monetizable life-span of 12 months.
Or other startups form that require as their monetization strategy, for some non-trivial percentage of all humans on the planet to be using their service before they can start skimming profit off of operating expenses. They hit 85% of those metrics, sell or IPO for the GDP of a medium sized European country and everybody is surprised when they have monetization problems.
The Startup->Invest->Value->Sell cycle is broken in several subtle places and it's not clear how to fix it other than for investors to just get smarter and/or have other investment vehicles available to them. Or at least start asking for startups to "start up" with a good business plan in place, and carefully evaluate it for nonsense. But this won't happen so long as the cycle as broken. Uninformed investors, who were trained on what success looks like from their own ridiculous lark of a company fundamentally don't know what a real company looks like.
Meanwhile there are other companies with real ideas, making real money, who are struggling to get valuations at 1xrevenue.
Like anything with money involved, tech startups have become a hit-driven industry, and over the long-term (10-20 years) this is generally bad for everybody.