'We're in a Bubble'
blog.samaltman.com
blog.samaltman.com
After Twilio filed for IPO, someone wrote a "here's what Hacker News said about Twilio," which only focused on the hilarious-in-hindsight but negative comments about the startup (https://news.ycombinator.com/item?id=11786464). Naturally, it got massive retweets from venture capitalists who espouse the haters-gonna-hate attitude.
As dang notes in that other comment thread, this kind of argument doesn't look at the other side at all: there have been some seriously shady dealings going on with unicorn startups. IPOs are failing. And let's not get started on Theranos.
By the way, I too am worth 2.5 billion dollars. What?! You want me to prove it?! Get off my lawn!
While I agree with the first part of what you wrote, when it comes to this I can say:
You don't need to prove it (and those unicorns didn't prove it either). You just need to be able to get some millions of dollars on your 2.5 billion self-valuation, and you'll be as good as them.
Because they did that.
Mathematically speaking you just need to get someone to give you a single dollar in exchange for 1/2500000000 of 100% ownership, meaning that 100% is theoretically worth $2.5 billion.
PRESS RELEASE: 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT https://signalvnoise.com/posts/1941-press-release-37signals-...
I give 'Dave's Dilly Daddlers' $100,000 for 10% of the company. But with the condition that if it's valuation ever falls below 1 millions dollars I get 20% equity, and if the company goes bust I get paid back before any other investors, and I get the title to the founders house.
I also give 'Georges Growers' a $100,000 for 10%. But with no conditions, I'm just buying a portion of the company.
Are both of these companies worth 1 million dollars? In some sense yes, but in a much more meaningful sense no. And many recent deals have been closer to the former than the latter.
Whose throats? The other VC "cronies" who are buying shares at those prices?
Source?
>Leave the Medium thought pieces about when the stock market is going to crash and the effect it’s going to have on the fundraising environment to other people—it’s boring, and history will forget those people anyway. There has never been a better time to take a long-term view and use technology to solve major problems, and we’ve never needed the solutions more than we do right now
Back to work!
Then this is is kinda like telling a soldier about to deploy to Afghanistan that they don't need Kevlar because it's never been a better time to bring democracy to the middle-east.
Or perhaps the more apt way of putting this in our times is: "Multiples will be crazy high as long as central banks keep interest rates crazy low"
Rather than thinking about this in terms of bubbles I think it's fair to say that the probability of getting very high ten year returns on the US stock market at these valuations is low. The problem is there's no other asset that will give you the chance of a better return. That's no coincidence.
Apple's P/E is 10.85 according to Yahoo Finance. That's low given current interest rates.
EDIT: The average Nasdaq P/E is 22.55 ... This is historically high but is ~4.4% vs. the 10 year treasury being 1.61% (and I say that painfully as I attempted to go short at one point). That is basically the story right there.
I have no idea how earnings multiples wound up with their pay-offs in the denominator. (Since it makes stupid things look bigger, and by default, anecdotally, most people agree bigger is better, I'm going to blame investment bankers.)
Thinking of a 22.55 P/E as a 4.4% E/P, i.e. 2 percentage points above the 30-year's 2.4% [1] is hugely clarifying. (I personally prefer the Shiller CAPE [2] for long-term broad-market assessments. It sits at 25.93, i.e. a 3.9% yield or 1.4 percentage points over the 30-year.)
[1] https://www.treasury.gov/resource-center/data-chart-center/i...
[2] https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-e...
Same way as with miles per gallon.
and in the larger market this has been a fairly anemic bull market, there still isn't a whole lot of froth outside of silicon valley.
To those of you like me I recommend you to read about what was happening in 95-99. The panorama was crazy, and today's context doesn't compare to the one of those days.
At the end, if the macroeconomic environment changes, who cares? Yes, paying attention to the macro is important and that may even imply changes in strategy, but should you not start a startup because there's a bubble? Even worse, should you (person who hasn't built anything but criticizes everyone who builds something) try to convince your friends not to start startups because we're in a bubble?
The main difference between today and 1999 is that digital products are actually generating value in people's lifes. Please don't compare pets.com to WhatsApp
Color[1]? Theranos? uBeam? Clinkle? Those crazy things are absolutely happening now, but the scale is important to know. (I don't know how the scale compares to the dotcom bubble.)
"and then going public all within a year."
1) it was founded after the tech bubble
2) it succeeded (or, at least, still operates)
3) had patents and a founding team with a string of successes in the industry
Nowadays it often seems the other way around - the technology is there, but the economics are questionable. The disconnect between valuation and even the most optimistic revenue projections for something like a chat app or a picture-sharing site can reach two orders of magnitude in the wrong direction. The market for tech companies themselves has become completely disconnected from the market for those companies' products and services.
I always felt they were like a social outlet for folks to waste time and their only revenue stream was advertising.
Where do they make the majority of their money? Is it advertising? or is it investments that they have made with public money? I am curious what their profits look like that their valuation is 328 Billion dollars.
There's clearly value because lots of people use it. You don't need any technical breakthroughs to create value. Possibly to monetize it but not to create it.
Btw. the underlying technology is pretty cool imo but that's besides the point. I mean they had what 30 engineers when they were bought (for about 500 million users)? Erlang yay.
I used to think like this too. Then I went on an overseas trip with a group of thirty baby-boomers (parents' friends). What I saw blew my mind.
Despite the fact that most people on the group could barely use a computer, they were very savvy and frequent WhatsApp users. They had created a group prior to the trip and everyone was a member, and throughout the trip the app was used to coordinate meeting times, share cool finds, joke around and exchange photos taken with the rest of the group. If a sub-group split up from the main group for a few hours, they quickly created their own group within the app, and then discarded it after joining with the main group. All within seconds. Even the several 70+ year olds in the group were using it and having a great time.
Then I realized: WhatsApp is an easier-to-use, more reliable, more secure and free version of SMS. That's why it's a big deal.
I'm not quite sure what happened to make this possible, but I think one related factor has to do with prepaid cell phone plans being more normal and less the exception, and very conscious data usage.
But I would say "like SMS, only doesn't cost money even when sending abroad" is the killer feature in my extended family.
However, sending a text message internationally — when I'm traveling to another country — is totally different and the rate is insane: $0.25/$0.50 per SMS/MMS sent. So they essentially force you to buy a special 30-day international texting bundle to be able to keep in touch with your friends back home.
The rates for data abroad from U.S. carriers are even worse: $60 for 300MB. I'm anxiously awaiting a "Whatsapp for cell data" style plan. How do you handle that?
Sure, email existed and even my grandmother started using it years ago. But email wasn't as ubiquitous to daily life.
Over here, WhatsApp is used by teachers to communicate with students, my driving instructor to set up appointments and let me know he's at the door, my parents to share random bits of their life in the family group, my friends to just meet up and have an ongoing pointless conversation, my colleagues to figure out who's in the office and when, people my various 'associations' to discuss when to meet and what to do, clients who want to know if I'm available, and so on.
The amazing thing is not WhatsApp as an app or what it's used for. It's the fact that everybody does it.
Not all the tech companies that were hot in 1999 were like pets.com. Google and Amazon were amazing new things back then, and other companies like Dell, Sun and Qualcomm were also high fliers on the NASDAQ. (I'm old enough to have been an investor in 1999.)
I think the most significant difference between the 1999 bubble and today's situation is that today, many of the companies with astronomical valuations are not public. For example, if Uber's valuation tanks, some employees and some rich investors will unfortunately lose money, but most people will see little effect - if you have a 401-K invested in an S&P 500 index fund, you won't care too much. And the big public tech companies that are making money, like Google, Amazon, Apple and Facebook, probably won't be affected much if all venture backed companies disappeared tomorrow (except that their labor market would be flooded with developers). The NASDAQ might take a dip, but it won't be like 1999.
1. The ephemerality makes me feel less self-conscious about the quality of the picture. It's going away momentarily, never to be seen again, so all I care about is conveying what is happening in the moment, not getting the perfect shot.
2. It's fast. Snapchat sacrifices image quality for speed to some extent, and the interface is faster and more fluid, particularly for broadcasting a snap to multiple people.
These things combine to make sending snaps feel very conversational. When I think of sending an image by text it feels like a hassle, and i'll only do it if it's a picture I want someone to have for more than 10 seconds.
I'm not sure if this explanation totally conveys my meaning, but in using it, it is quite clear to me that there is indeed something categorically different between snapchat and MMS texting, though it is admittedly somewhat hard to pin down what that is.
It allows you to express yourself via images in a fundamentally different way. To simply photograph/record the thing happening in front of you because it was funny or amusing for a second, but not have to ask yourself the question "is this worth preserving forever?". It turns a snap into the equivalent of throwaway, idle verbal conversation.
Texts/instagram are the written letters of the digital age. Careful, considered (and if not, people think you're an idiot and look down on you). Snaps are in-person chatter. They don't have to be super meaningful or well composed, just the digital equivalent of "how about this weather we're having".
I wonder if it's mostly just network effect? Here pretty much everyone already has whatsapp so you just use that instead of registering/installing a new service/app.
But I have discussed Snapchat with the youngsters at my work. They all "get it" in a way that I don't seem to. And we use it for advertising, and it brings in revenue (our target market is aged 18-25).
Obviously we aren't able to predict a few months into the future, let alone a hundred years, so it's hard to definitively say whether current behavior is sustainable for a hundred years or not.
It's much more reasonable/believable to say that current behavior is unsustainable for 1, 5, or 10 years.
Perhaps both the magnitude and the time leading up to it are of equal importance.
Yet as much as it hurts, it has to, and will happen. Doesn't mean it will be as bad as 2008, but it's part of the business cycle. I don't think there's any denying that valuations have gotten way out of hand, especially in the private equity and VC world. But trying to call a top is just as hard as calling a bottom, if it were easy policy decisions would be easy.
It's a "creative destruction" within the capital markets. Gets the dumb money out...funds businesses that actually make money and builds upon the rubble on a stronger, firmer foundation.
See eg http://www.economist.com/blogs/freeexchange/2011/10/monetary...
It's also why this latest bubble / not-bubble was popped by the first Fed moves toward hiking rates. All the panic around unicorn blood in the street started exactly in line with the Fed's moves to hike rates (nice coincidence eh). And it's also why the stock market has struggled to move higher since the Fed's QE program ended (sideways for ~19 months now). If the Fed hikes rates (which they won't in any meaningful way), it'll continue to deflate all elevated asset prices.
If my watch always says it's 3:22, regardless of whether it is or not, does that mean it's never 3:22?
I don't think the argument is whether we are or are not in a bubble. It seems pretty clear that a bubble is filling around us (whether that is a slow or quick fill is a personal point if view). The argument really should be how long do we continue to risk getting soaked versus staying dry (keeping our investments). I think some are finding a solution by removing themselves from the equation and taking their investment dollars elsewhere. And that singular act, if/when it starts to exponentially grow, will ultimately decide the timing of the burst.
Whatever industry replaces "tech" as the next great revolution (perhaps AI?) will have "bubbles" orders of magnitudes greater than what we're seeing now. If you think we're in a bubble now, which we very well could be (I'm unsure), just wait for the future.
It's housing prices in Flint, Michigan. It hit a peak of $172K in 2005. By 2011 it was $106K, or about the same price as in late 1995. Currently it is at $140K, which is essentially the price in 2000. Assuming it goes at its current rate, I guess it will be about the year 2020 before it recovers to its 2005 high.
Now, it's not really fair to call this a "bubble" since externalities are at fault. However, if you look at the increase (1.6x in 10 years) against an inflation rate of 3% (1.3x), you can see that housing was over valued during that period. I'm pulling the inflation rate from http://www.usinflationcalculator.com/inflation/historical-in..., and if anything overestimating it.
If you look at today's price it has a multiplier of 1.3 from the 1995 price, so it is still slightly undervalued, but should catch up to inflation in the next few years.
My point is that despite the credit crunch being the underlying cause of the crash, the market had been growing at nearly twice inflation for 10 years. 11 years after the crash the market is still recovering and it will be a couple of years before you get to reasonable prices. So you can go a very long time before unsustainable growth will collapse. This leads to a very, very long time for recovery.
I live in Japan. It is 2016. The market still has not recovered from 1992. If the world ever gets into an energy crunch, I think we might well look at the last 50 years or so as being a "bubble".
Edit: fixed inflation rate link
Imagine that you bought some tulips and just by hanging on to them for a while, you can realise a profit. This would be cool because everyone could put all their spare money into tulips and then turn around and sell them for a profit. Because the price of tulips keep going up (and people want to spend some of their gains on other things), eventually people will be able to buy less and less of them. However we might be able to raise salaries so that people can afford these tulips endlessly. In this way the inflation rate will exactly match the increase in price in tulips.
If we can't raise salaries to match the increase in the price of tulips, eventually people will be priced out of the tulip market and demand will dip. This will cause the price to fall. If people start to think, "Hey wait a minute. I'm not guaranteed to make a profit with these tulips after all", the price can fall a lot. If people start realising that they need to take a loss on their tulips so that they can afford to eat today, the price can tumble. How far can it fall? Mostly it depends on how clever people were for keeping the tulip bubble going. The more clever they were, the worse the potential fall. Essentially, it is likely to fall to the point at which the price of tulips escaped from inflation -- because it is a liquid asset and the need for tulips hasn't increased substantially over that time period.
Demand can influence the price of houses (and obviously did in Flint), but the degree to which the market dropped was a result of how overcooked the housing market was. Beware. Flint was never as overcooked as some markets are and people were never as clever about keeping the values high as some markets are.
Can a bubble last 10 years or more and then wipe out all of those gains? Absolutely. I only picked Flint because young people are likely to have heard of the problems there. You could also look at the housing market in London in 1991/1992.
Can the tech bubble burst and wipe out 10 years of gains? Sure. No problem. That's the only way I could interpret the person's question, "Can a bubble that has lasted 10 years still be called a bubble?" Definitely.
To be more mathematical, your property is the house plus the land under it.
People will not pay more for the house than replacement value. If you keep it in good order, you can keep that value up.
The land can't be `replaced'. So for pricing we look at the whole future income stream discounted to today's dollars at some appropriate interest rates.
That income stream is, yes, basically what other people are willing to pay to use that piece of land.
What people can afford to pay for rent is basically what's left over after they paid other things. You can see it as an auction. That's why land values in silicon valley are so high. (Exacerbated by the fact that local regulation there makes it almost impossible to substitute capital for land, ie you can't build up.)
I don't know when, but everything is lined up "nicely". Ridiculously low interest rates, sky high prices, insane salaries. Even if SV companies move to a cheaper location to save on salaries it could trigger the collapse. Seriously not looking forward to a time when the fed raises interest rates to protect a falling dollar... Etc.
That's why I am in favour of taxing land values (as a proxy for unearned land rent), and the central bank targeting nominal GDP levels.
The former policy dampens land price bubbles and raises taxes in the most economically efficient way possible; the latter avoids real shocks in one part of the economy taking the whole house of cards down.
Ideally, no single company would then be too big to fail.
http://www.economist.com/blogs/freeexchange/2015/04/land-val...
http://www.economist.com/blogs/freeexchange/2011/10/monetary...
1988 - housing market bubble S&L scandal etc. market crashed.
1998-1999 - dot com bubble burst.
2008 - Housing and lending crashes economy.
Seems like the most major events in the markets crashing have been coming every ten years or so. Markets crash and it's called a bubble after but, it's all fueled by media events, fear and then panic selling.
Those people typically aren't investing in startups
http://www.nytimes.com/2015/03/23/business/dealbook/tech-mon...
At that rate, tech start-up stocks will never even make up 1% of the fund.
People young enough to have never been through a downturn in their professional career are usually in denial right up until the moment it happens. And the people who try to call the bubble early, as funny as it may be to make fun of them as is being done here, are usually the ones who have been through it before, see it coming early, and try to warn everyone, even though no one ever listens (too busy enjoying the party!)
Year-ago-me wouldn't have believed it. Bubbles suck, and the current tech industry reminds me of my own experiences - Pop.
When I tried to get a new position later on, everybody was expecting cloud and web development experience, which is experience I don't have. Insistence that it was within reason to learn cloud utilities never worked, even with experience building tools to build vmware instances in bulk. For the positions that I was qualified for, I found myself having more knowledge than the interviewers, so I gave off an unintentional arrogant vibe. For example for a job I was really interested in, I got dinged for my answer to the question, "How do you print all open sockets?" for answering "lsof -i". Apparently netstat was the only acceptable answer. That sort of thing happens all the time, and interviewers do NOT like to be corrected - the number of senior admins who don't know how file handles work is asinine.
It got very, very tiring very quickly and I just kind of gave up. I'm now working in building up investigative journalist and data analysis experience to get out of the linux field. It's going pretty well, but there's little money in it so far. If that doesn't work, a few interesting positions in infrastructure security are in the pipe.
</rant>
(one recent little example of what made me think of this was the scene in the documentary Spotlight where the journalist analyze volumes of data on priests' assignments and whatnot - all by hand. I couldn't help but think it'd be so much easier to OCR the pages and analyze the data with some basic scripting.)
Just to name some..
-Working on the IT infrastructure and one of the 5 or so founders of a 160p LAN party.
-Data analysis of Chicago parking tickets: https://plot.ly/~red-bin/6.embed
-Sued the mayor of Chicago for his phone records and won. Still working on it, but I met up with a journalist to discuss last Monday.
-Doing HFT systems tuning as freelance (pays the bills, too).
-Submitted a major infrastructure bug to comcast. Talked to their CISO and everything.
-Did the same for Northwestern, but with less followthrough.
-Learned a bit of R, significantly improved my python, did a bunch of random silly projects.
-Made a proof of concept for a domestic violence shelter finder for a hackathon. Just handed off the code to a few junior coders to ride with.
-Made a minecraft 3d printer print a png mural by pulling from github in-game. Limited myself to only using textures in the game without color transformations. Became a really hard problem, since the 'pixels' used by the printer don't move. Learned more than I'd thought from that project.
..It's fun. :)
First, someone is always "calling the bubble". At the bottom of the housing market there were people screaming that it was going to keep dropping. People have been calling the tech market a bubble for literally decades. And conversely, there are always people claiming that we're nowhere near the top, even when we are. It's not useful to listen because the reality is that no one really knows. If you think we're the top of a bubble, then cash out and be happy with your superiority.
Second, what are you, as an employee, going to do if you think the tech bubble is going to pop? Sure, you should be saving, but you should do that anyway. You shouldn't be over invested in tech, but that's also always true. What meaningful steps should you take if you believe a tech bubble is about to pop that you should not take anyway?
But you're right that knowing a bubble is about to pop might certainly dissuade many people from entering this kind of risky, lopsided employment deal.
First the bursting of the first tech bubble. Then Greenspan's housing bubble in 2001-2007. Then interest rates were held abornmally low, for 80 months straight, which is something that the world has _never_ seen.
Would we have seen this tech boom if interest rates had been say 5% and capital had somewhere else to flow?
I'm pretty wary of "The music hasn't stopped playing, so it can't possibly be a bubble" arguments. Lets watch what happens as rates go up and venture backed tech has to compete with other returns.
The same can be said for pension plans who formerly invested heavily in alternative investments, and who now must ensure fund stability as pension payouts peak in the coming years.
Foreign investors and sovereign funds are under increased pressure to keep foreign currency at home, particularly in China and Russia.
Interest rates are poised to rise, held back by a US Federal Reserve loaded, cocked and ready to fire; thereby increasing VC carrying costs.
The global political environment is not favorable for economic investment. Highly publicized bellicose rhetoric and outright conflict is pervasive. Investors loathe the uncertainty and anxiety this creates.
So, this time its different
I suspect there may be strong returns to be had in M&A, particularly after Microsoft's aggressive bid for LinkedIN. I note even Twitter is performing well today*. I imagine there may still be strong IPO's, like Twilio seems positioned to be. But, I believe we're entering a less liquid and lower alpha period in investing.
I can't say I have special knowledge on the topic, other than being a close observer.
(Disclaimer: I do own TWTR)
Decided to look this one up. It hit $200B in late 2014, so that prediction was impressively spot-on: https://ycharts.com/companies/FB/market_cap
Actually they are worth more than all the big auto manufacturers in the world combined.
Incredible. What were their earnings?
GroupOn is at 0.3x, Foursquare and Quora are zombies and it's unclear what's going on with Bonobos or Lunatik.
I personally believe that the current economic regime, requiring constant growth (and large growth) for health is not sustainable. Am I willing to bet on when the next big economic crash will occur? No.
So at the moment, today, tech industry isn't dead / crashed . So we can find people who said that it will and point at them that they were wrong. And if the crash comes tomorrow, are we going to say 'well, it was predicted soooo', do the usual post-fact rationalization on how obvious it was, etc.
But so what? We can do exactly this for any prediction whatsoever. Wars, financial crashes, economical and political events, etc. People, from cab drivers to executives and ministers, make wrong predictions all the time.
I honestly don't see the point of it, other than highlight that someone was wrong and... feel good about yourself that you were on the winning side this time?
Should we stop predicting? Yeah, probably. But the ending 'And now Trump thinks we’re in a tech bubble too, so maybe it’s true.' doesn't really deliver this message.
So it doesn't matter whether people repeat prophecies or doom for a long time or not -- unless it's actually a bubble, it won't ever burst. At worse it will start declining slowly.
That's why the arguments like "it hasn't burst all those years so it's not a bubble" don't get it either.
Being a bubble is not something that has to do with duration (whether it lasts for a long time or not) -- it has to do with the non-linear effects of the burst.
Of course it the burst never comes, or it's instead some gradual decline, then it's not a bubble.
Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state. Saying "We're in a bubble" really just means colloquially "I think this market segment is overvalued", probably not much more than that.
No, that's just its defining characteristic. You can "tell" by other signs too -- but they could be misleading.
>Whatever "bubble" means, it should probably only be used as a description of an abrupt crash in retrospect, otherwise we're always in a non-falsifiable bubble state.
That's the case with every phenomenon that depends in the final result for its definition. E.g. is an act X "beneficial"? We might have some heuristics, but we can only certainly know from its effects after it is completed.
MSFT has a P/E of 38, for example
If I had to guess, I think we'll see a lot of M&A activity at some very high prices from other companies that are richly valued.
Financial products are definitely not always overvalued either. Accounting was created so that we can properly evaluate what a company's overall value discounted for future earnings and they are pretty accurate (accounting was never my favorite subject so that can probably be better defined)
$15 billion. They'll do half that in net income in the next four quarters.
Interestingly the $125 per user figure quoted on the Gigaom article (the $15 billion valuation divided by their daily actives or total users at the time), is now more like $195 per user (1.68 billion daily actives with $328b market cap).
The 90s was a typical gold-rush type of scenario where no one knew what anything was worth, and so investment continued until someone figured out that there was no one everyone could make money even if the entire mountain was made of gold and started betting against the herd.
Going by the cyclical pattern, we're overdue for a recession in the U.S. However, no one knows how severe it could be, especially considering that the "recovery" from the '08 meltdown was tepid at best.
As far as tech investing goes, the best way to make money is to back a number of good looking horses and hope the wins pay for the losses. Which is the same as it always was. If you're smart, you'll also diversify in case something does happen to cause the entire industry to take a dive. However, short of a major quake taking down most of SV, the number of different ways businesses are trying to make money means that, IMO, it's more difficult for one event to take them all down, unlike 1999.
I presume that the objective of investors (who have much more money that $750K) is to either to a) make money or b) make money and bring a new technology/innovation to market. In a bubble I see more of the former (focus on money) without the innovation piece. How many car sharing (Uber/Lyft/Sidecar), food-delivery (GrubHub/OrderAhead/DoorDash), and credit card alternatives (Venmo/Coin/Stratos) do we really need? Would the founders of such companies put their retirement savings into starting these companies? Maybe, maybe not.
Innovation is key to keeping a bubble at bay. Y combinator has quite a few companies where the goal is to make money through innovation. These are ventures dedicated to biomedical research (DNA sequencing/Gene Mapping), novel algorithm development (AI/Machine Learning), improving social welfare (Water Filtration/Education), etc. I'd be happy to see a world full of these, and I wouldn't call it a bubble. It would be people pursuing ideas that could solve real problems in the world. Ideas that are worth investing your (and therefore an investor's) money.
I believe that innovative companies keep a bubble at bay precisely because they are less likely to succeed. Investors must faithfully evaluate innovative companies to see if their technology is feasible and if the market is ready.
In the end I have to believe people are measuring the value based almost exclusively on the website's "traction". Frankly, I think "traction" is an outdated metric (especially when it comes to the web).
I almost feel like I have to remind folks here (who are arguing against the premise that we're in the middle of a period of extraordinarily excessive valuations) that the web provides an almost frictionless environment to change. If tomorrow someone launches a better LinkedIn, there is ZERO reason I can't switch over (or use both) that same day).
In tomorrow's world I see individual engineers (or surely teams of less than 10) will have the capacity to build a product better than LinkedIn, at and beyond the scale of LinkedIn, in their garage (thanks to the cloud). With little to no investment.
In the future (by my estimation the not-too-distant future) $20+ billion for a resume website will be unconscionable (if it isn't already).
Why is it an affront to you if some business guys can figure out a way to call FB worth $33B? Of course now nobody would question that, because they're one of only two games in town when it comes to advertising. But even before that, why get so pissy? If the valuation is sooo crazy then bet against it. Why get so upset that LinkedIn sold for $26B? If you think MS wasted their money then let them waste it.
Why be so concerned that VCs are making bad bets? Let them! Are you a limited partner? Then who cares?!
I get that people don't like the knock-on effects, rent goes up, engineers are harder to hire. But I don't see why anyone should give a shit if a dumb VC wasted their firm's money on a dumb idea.
I can't buy the notion, that we will or ever see a bubble ... it's just ups and lows just about anything in life ... because at this point and in future internet is too larger to be vulnerable to it.
But that said, there is a little room left, for developers living in the mom's basement., and that's truly sad.
No disrespect meant, but this kind of thinking is exactly how bubbles happen and everything gets out of kilter. Like people who believe house prices will go up forever, so they leverage up - it's irrational exuberance (to quote Alan Greenspan). But eventually this imaginary money that people believed to exist, actually didn't, because the human beings that needed to work N hours to produce that wealth haven't actually been alive long enough to do it. And boom, it all resets.
I actually think one of the key tells for being in a bubble is so many people denying we're in a bubble. The talk of it alone is enough to spread fear and doubt. That moves markets. All that is needed is an 'event' that confirms the fears, and boom. It could well be a failed IPO.
Who knows? Not I. I was one of the idiots that bought lastminute.com shares.
> I don't think the bubble thing is true for our time
> nor it will be in the near future, it's just tech has become more competitive than ever
> I can't buy the notion, that we will or ever see a bubble
> because at this point and in future internet is too larger to be vulnerable to it.
An interesting aspect is Altman's position, argued by citing "they were wrong time and time again" data points. His day job is to create new ventures, some of which will presumably disrupt existing giants and lower their value. This dynamic is dangerous to the assumption of stability in organizational trends upon which value metrics are based. In some sense, there is overvaluation (because new opportunities are undervalued), if not a bubble.
A bunch of my co-workers and I were out to lunch with a new member of our team (management level). The conversation turned to the real estate boom that we were in the middle of. The new guy had already, during the conversation, let us all know he had made a nice chunk of change in real estate recently, and was in the middle of looking for a new house with his wife. They apparently had their eye on a few really nice waterfront properties. That sort of got a few folks talking "bubble". He laughed it off and smugly told us all that (paraphrased) "in reality the market is just going to keep going up."
Famous last words, he ended up closing a few months before the crash.
bubbles are caused by collective overinvestment; that means that a lot of the ideas can be good ideas: if everybody else also doesn't invest in them at the same time. It's a bit of tragedy of the commons, it's the collective knowledge that's lacking in individual decisions.
If everyone is willfully deluding themselves and see nothing wrong with it, for what reason do we believe that it will change in the future and that the bubble will pop? And the current situation is different from the 2008 crash in that people know what they are buying into, companies that don't make money, and they don't care.
When valuation changes cause widespread insolvency, imo.
That was possible in 2008 because household debt levels combined with the subprime scams create underwater households that could no longer keep up with payments.
Who would become insolvent when tech stock valuations change?
To which I say: "Even a broken clock is right twice a day."
lol
The tech bubble may very well outlast the US dollar bubble.
My friend referred me to this Bill Gurley article [1]. My metric for whether there is another bubble is not so sophisticated. I feel that there is a bubble when celebrities (like sports personalities) begin investing in questionable startups [2][3]. Harkens back to the '99 bubble.
Edit: Before you bring up Ashton Kutcher, a single data point does not a trend make. But yes, we've been in a bubble long before he began investing actually.
[1]: http://abovethecrowd.com/2014/01/24/on-bubbles/
[2]: http://www.vanityfair.com/news/2016/04/kobe-bryant-silicon-v...
[3]: https://e27.co/boxing-champion-manny-pacquiao-throws-his-hat...
[1] http://www.forbes.com/sites/zackomalleygreenburg/2016/03/23/...
[1]: http://www.businesstimes.com.sg/companies-markets/capitaland...
Listening investors stop investing in startups, making the bubble burst faster?
If it is indeed a bubble, is there anything positive that will result from it bursting?
When a bubble bursts we collectively look around and think "What is it that we really need?"
Ohh, makes sense. Thanks for putting that in a clear way. So, while it's painful, you could say bubbles bursting is healthy...
Whenever I try to say that around friends I come off as malevolent. I'll use your words next time.
I guess they don't want to risk duplicating lastminute.com
Only question is when it pops.
Using bubble-quotes from that era as evidence that we're not in a bubble now is absolutely preposterous.
Its easy to provide all kinds of justification in hindsight or "after the crash". If you were a "happy investor" sitting on top of January 2008 crash, I bet the last thing in your mind will be "someone is insane". Its only because the crash happened just after that and so now you have the liberty to say "INSANE TIME".
Its the same economic cycle happening right now. I don't know when the DOW/NASDAQ is going to crash and how many points, but I do know that almost no one can anticipate it right on top of the price chart, and say "Hey look, this move will now cause an economic recession". It always happens after the fact!
Otherwise: shut up and fuck off.
Because for all the hullaballoo about poor allocation in X or Y [Combinator] or Z company being correct, the broader premise, that the market is working out good things to do with money, is clearly somewhat proven by Silicon Valley's last decade of spend: cheap, connected, actually smart smartphones; electric cars becoming affordable; affordable re-useable rockets. All of which are vastly humanly benign, as well as good ways to make money (not all of which do, but some do, i.e. phones).
So, pony up, or fuck the fuck off.
-Also, good things with money? One words. THERANOS.