Comment by wisty | Hacker News Reader

Comment by wisty | Hacker News Reader

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An incubator bubble isn't a scary bubble.

Bubbles are scary when they fill one criteria - investment in the bottom of the pyramid is feeding the top, making the whole thing look more profitable than it is.

For example, in the tech bubble, the new companies were buying Sun servers, Oracle databases, and Yahoo! ads. This made Sun, Oracle, and Yahoo very profitable, which encouraged more tech investment. But that snake can't eat itself forever, and when investment slowed it all went bust.

Likewise, housing bubbles affect (effect?) so much of the economy they can't help but feed off themselves.

And in a classic Ponzi scheme, the mechanism is the same - the bottom feeds the top, so people think that there are outsize gains to be made. Those gains evaporate once new entrants slow.

Now, there's some new startups like Heroku who are "selling picks in a gold rush". But there's plenty of others like Groupon and AirBnB who are selling to the wider economy. The successful internet start-ups don't usually feed off new entrants, so I don't think a really scary bubble can form.

That said, if a bunch of random airheads (who are these 60+ new incubators? top tier VC? bottom tier VC? government? universities? there will be winners and losers here) think they can attract the same talent as Paul Graham, and vet business and technology plans as successfully, they may stand to lose their shirts.

I'd agree that an incubator bubble isn't a scary bubble, but for different reasons.

In slightly oversimplified economics, bubbles are bad because they mis-direct investment from productive areas to the unproductive but bubbling area of the economy.

The result is too much of something (ex. houses) and the inevitable crash almost always result in a shortage of funds (ex. a credit crisis). Thus the bubble hurts the rest of the economy in two ways. 1. Creates too much of something which which is not needed. 2. Deprives productive business of funding, by both sucking it up and later possibly causing a financial panic.

I can not think of how an incubator bubble can do those things.Can you have too much seed investment in startups? It's like throwing money at the ceiling, but so what? How's that so different from what angel investors do now? Is there any angel who has a long term track record of guessing better than random chance? Yes, pg and company are great, but that's not because they just guess, they also provide huge support after they pick a startup, imho that's where 50% if not more of the magic is.

And what would a bursting of the incubator bubble result in? A credit crisis? I can't imagine that. Incubators would have to become a HUGE part of the economy, I can not imagine this.

And if a collapse in incubators leads to a lack of funding, well its like the valley of death after the .COM 1.0 bubble burst. How many great companies came out of the aftermath of that? Tons!

The pyramid in this case is that the people getting acquisition exits are becoming angels. Not really that different from your example of Sun/Oracle/Yahoo profitability help drive the tech bubble.

That's more like the top feeding the bottom than the other way around.

Which isn't as scary. Because the outsize rewards are not being paid for by new investment into the sector (unless you count later funding, but that's not the incubator's problem - tech boom and bust is already a fact of life for VCs and other people who invest in later-stage tech companies).

Only if you call it a donation instead of an investment.

Incubator for 1999: http://www.forbes.com/1999/12/15/feat.html "What do these incubators really do? For starters, they provide office space, technology infrastructure, seed-capital (mostly about $250,000 or so), and access to some vital talent such as marketing and financial people, according to Cohen. "Mentoring and the hands-on approach is what is going to help the companies which are being incubated get to market faster," says Levy."

Off topic, but I think you'll appreciate this:

Affect is a verb (Housing bubbles affect so much of the economy), and effect is a noun (The effect of the housing bubbles is so much). My poor formula to remember that effect is a noun: Remember the term "after-effect"

Actually, either word is both a noun and a verb.

Actually, the noun one can be a verb, roughly meaning "cause" or "produce". Thus the XKCD grammar-nazi trap "Did this effect (cause) the situation?"

Unfortunately, I can never remember which one is usually a noun. I just think "affect starts with an 'a', which is a noun, but I'm always wrong so it must be a verb".

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