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How fair is it to compare this round of late-stage devaluations with the dot-com bubble? From what I've read/heard, "irrational exuberance" is an apt descriptio

How fair is it to compare this round of late-stage devaluations with the dot-com bubble? From what I've read/heard, "irrational exuberance" is an apt description of the scene in the late 90's and early 2000's. But it seems like this latest tech business cycle has taken on a different flavor. Coming off the tails of the financial crisis and great recession rather than an era of relative peace and prosperity in the 90's, this latest round of tech investing has been surrounded by a lot more vitriol and fear than the accounts I've heard of the dot-com bubble, where almost everyone was benefitting from a booming stock market and strong economy, optimistic about the future of the internet, the country, and the world. A prime example that really struck me the other day was PGs article on inequality. [0] In it he expressed that he felt like he was a wild animal being hunted - one of the most successful, famous, and well-respected VCs in the world feels threatened by macroeconomic rumblings? And he's expressing it publicly? Did this ever happen during the dot-com bubble? [1] Perhaps this fear is a good thing, a tempering agent. It seems large, late-round pension funds and institutional investors (who probably manage a great deal of this country's retirement/savings accounts) are being cautious and performing due diligence on these tech investments, rather than simply going along with the crazy valuations and riding the bubble for higher management fees and bonuses. [0] http://www.paulgraham.com/ineq.html http://www.paulgraham.com/ineq.html [1] "I feel rather like a wild animal overhearing a conversation between hunters. But the thing that strikes me most about the conversations I overhear is how confused they are. They don't even seem clear whether they want to kill me or not."

nostrademons 11y ago
I think a major difference is that in the late-90s bubble, everyone felt like they were winning. Stock market valuations were rising, many ordinary Americans held stock in dot-coms, high-paying jobs were being created that were being filled by ordinary middle-class people. Ordinary people could look at their brokerage account and think "Wow, I'm rich now!" The only problem was that it was all fictional. Having your portfolio worth a million dollars now is useless when it's only worth $2000 when you go to sell. Getting six-figure salaries at a dot-com when you just have six months HTML experience is kinda ridiculous (okay, we have a variant of this today as well). In many ways, this boom is a lot more honest, and a lot more real. It has winners and losers, many (but not all) of the winners put in years of hard work to get there, and people generally have a sense of where they stand. The problem is that there are far more losers than winners. That doesn't make for a positive mood, or a stable society.
- uniclaude 11y ago
  In the SV, it's not uncommon for iOS and Rails developers to be paid six figures after only a little training. This is exactly what you said was happening in the dotcom era: middle class people put in high paying positions. The point about the stock market stands though. It is the strongest difference the current era has with the 90s.
  - Hydraulix989 11y ago
    Without disparaging iOS or Rails developers, I assume that's what nostrademons meant when he said, "Okay, we have a variant of this today as well."
    - abalashov 11y ago
      I would have thought he was referring to something more steps down on the totem pole. To do iOS or Rails development you actually have to know a programming language somewhat well, especially in the case of Objective C. Or so I would have thought; perhaps I'm in unaware of IDEs and tool chains that can cover for a lack of fundamental software engineering expertise. The variant I'd have in mind is web designers masquerading as backend system developers. That's something Node has made possible. CSS and HTML experts usually know just enough JavaScript to be dangerous--JS is table stakes these days for UI work. Node creates the illusion that they can write backend middleware, APIs and services, too. Some of them surely can, but for every one of those, I've seen ten JS "rock stars" copy-and-pasting Angular and Express code from Stack Overflow, cargo cult style, at six figures.
      - nostrademons 11y ago
        It was as Hydraulix said, specifically graduates of coding bootcamps. Many (not all) of those programs are very reminiscent of the "web development is hot - you can make lots of money with few qualifications!" meme that was popular in the dot-com era. I don't actually think that web developers of today moving down the stack is all that problematic. For one, a number of them can - modern web development is a lot more intricate than it was in 1997, and if you get beyond the Bootstrap stage, it usually requires that you actually understand fundamentals of how your browser works instead of just cargo-culting some code. People who can do that usually do well in any programming language. Beyond that, Node won't really let them - it will break pretty quickly if you don't understand callbacks, async patterns, modularity, etc. The contemporary JS world has a lot of problems, but IMHO incompetent devs isn't actually one of them. (Going out on a limb, I'd argue that all its problems actually stem from devs that are too competent in one specific area not understanding what's important and what's not in the larger context of the software industry.)
ChuckMcM 11y ago
It certainly feels much more orderly. A number of funds were competing to be in on the "next big thing" and drove some pretty spectacular valuations, but they had to believe themselves these were reasonable valuations. And now, after some IPO experiences, it seems they are coming back down to earth and being more pessimistic about valuations. The dot com crash was a bit different, people were using money raised by the sale of stock as working capital (the day to day money to fund operations) and when a few companies went "poof" those companies found not only could they not sell shares to the public, they couldn't sell them to private investors either. And without being actually cash flow positive they had to cease to exist, and after a couple of those well everyone was running for the door at that point, regardless of quality. A lot of companies simply ran out of cash to fund operations, and while they shrank to try to intercept their burn at a point where they were profitable, many didn't make it, and many were bought by other companies taking advantage of the overly depressed prices. Very much like the foreclosure market on homes. So I think what this means is that you aren't going to be able to get some hedge fund or mutual fund to lead your funding round with a huge valuation. Instead everyone will want to "participate but not lead." That is the phrase that every CEO hates, it means "we don't believe your valuation, and you have to convince someone, other than you, that you're worth this or we won't invest any more." So it means that source of funding is now "much harder". And because of that companies that are running short on cash have only three choices, debt, cut costs, or ask the public markets for money. The debt financing market is full of sharks, they may already believe you are dead and still loan you money because the terms gets them paid first. And if they have a big enough piece, they wield way more power than the rest of the board of directors because they can put you out of business by calling your loan. That is why it is the last "all in" kind of bet you ever make as an entrepreneur. Cutting costs is the only thing you are really 100% in control of, you can layoff half the staff, sublease your space, and eliminate any sorts of "perks" like meals or bus passes. You probably cut all travel for anyone except the CEO and the CFO (trying to raise more money) and get out of any trade shows or other venues where you have to pay to play (say SXSW for example). You can come out the other side of this stronger as a company but if you've previously had a pretty costly "culture" its going hurt morale big time. And finally you can throw together your IPO, you can take it on the road, and try to get the public to buy it. Often times you'll do a big reverse split to get the share values up to a reasonable road show price, depending on how dead like you are your investment banker may structure it so that they make their money regardless (rachets, special additional stock dispensation, etc) and you are of course taking on a crap ton of additional filing and paperwork and regulation oversight. And a number of companies will die. We don't really need three companies disrupting the taxi business, we only need one. We don't need three or four companies in the casual hospitality space, you really only need one, maybe two. Shopping delivery? A half of one perhaps. Things that are companies and look more like a feature? Well the become features of the company that acquires them. Did you add real value? Did you make something someone really wants? Is it really a market and not a fad? Great you survive. Was it just a gimmick? Or a cute idea that everyone tried once? Well you die. Well all learn something and the world turns around. And if you thought something should have survived and yet it died, then you can look at its life and what it tried and see where the world thought differently than you did. Was it market reach? Operational efficiency? Too many people trying to grab a piece? All great things we learn by trying to build companies that succeed and ones that die.

nostrademons 11y ago

I think a major difference is that in the late-90s bubble, everyone felt like they were winning. Stock market valuations were rising, many ordinary Americans held stock in dot-coms, high-paying jobs were being created that were being filled by ordinary middle-class people. Ordinary people could look at their brokerage account and think "Wow, I'm rich now!" The only problem was that it was all fictional. Having your portfolio worth a million dollars now is useless when it's only worth $2000 when you go to sell. Getting six-figure salaries at a dot-com when you just have six months HTML experience is kinda ridiculous (okay, we have a variant of this today as well). In many ways, this boom is a lot more honest, and a lot more real. It has winners and losers, many (but not all) of the winners put in years of hard work to get there, and people generally have a sense of where they stand. The problem is that there are far more losers than winners. That doesn't make for a positive mood, or a stable society.

uniclaude 11y ago
In the SV, it's not uncommon for iOS and Rails developers to be paid six figures after only a little training. This is exactly what you said was happening in the dotcom era: middle class people put in high paying positions. The point about the stock market stands though. It is the strongest difference the current era has with the 90s.
- Hydraulix989 11y ago
  Without disparaging iOS or Rails developers, I assume that's what nostrademons meant when he said, "Okay, we have a variant of this today as well."
  - abalashov 11y ago
    I would have thought he was referring to something more steps down on the totem pole. To do iOS or Rails development you actually have to know a programming language somewhat well, especially in the case of Objective C. Or so I would have thought; perhaps I'm in unaware of IDEs and tool chains that can cover for a lack of fundamental software engineering expertise. The variant I'd have in mind is web designers masquerading as backend system developers. That's something Node has made possible. CSS and HTML experts usually know just enough JavaScript to be dangerous--JS is table stakes these days for UI work. Node creates the illusion that they can write backend middleware, APIs and services, too. Some of them surely can, but for every one of those, I've seen ten JS "rock stars" copy-and-pasting Angular and Express code from Stack Overflow, cargo cult style, at six figures.
    - nostrademons 11y ago
      It was as Hydraulix said, specifically graduates of coding bootcamps. Many (not all) of those programs are very reminiscent of the "web development is hot - you can make lots of money with few qualifications!" meme that was popular in the dot-com era. I don't actually think that web developers of today moving down the stack is all that problematic. For one, a number of them can - modern web development is a lot more intricate than it was in 1997, and if you get beyond the Bootstrap stage, it usually requires that you actually understand fundamentals of how your browser works instead of just cargo-culting some code. People who can do that usually do well in any programming language. Beyond that, Node won't really let them - it will break pretty quickly if you don't understand callbacks, async patterns, modularity, etc. The contemporary JS world has a lot of problems, but IMHO incompetent devs isn't actually one of them. (Going out on a limb, I'd argue that all its problems actually stem from devs that are too competent in one specific area not understanding what's important and what's not in the larger context of the software industry.)

ChuckMcM 11y ago

It certainly feels much more orderly. A number of funds were competing to be in on the "next big thing" and drove some pretty spectacular valuations, but they had to believe themselves these were reasonable valuations. And now, after some IPO experiences, it seems they are coming back down to earth and being more pessimistic about valuations. The dot com crash was a bit different, people were using money raised by the sale of stock as working capital (the day to day money to fund operations) and when a few companies went "poof" those companies found not only could they not sell shares to the public, they couldn't sell them to private investors either. And without being actually cash flow positive they had to cease to exist, and after a couple of those well everyone was running for the door at that point, regardless of quality. A lot of companies simply ran out of cash to fund operations, and while they shrank to try to intercept their burn at a point where they were profitable, many didn't make it, and many were bought by other companies taking advantage of the overly depressed prices. Very much like the foreclosure market on homes. So I think what this means is that you aren't going to be able to get some hedge fund or mutual fund to lead your funding round with a huge valuation. Instead everyone will want to "participate but not lead." That is the phrase that every CEO hates, it means "we don't believe your valuation, and you have to convince someone, other than you, that you're worth this or we won't invest any more." So it means that source of funding is now "much harder". And because of that companies that are running short on cash have only three choices, debt, cut costs, or ask the public markets for money. The debt financing market is full of sharks, they may already believe you are dead and still loan you money because the terms gets them paid first. And if they have a big enough piece, they wield way more power than the rest of the board of directors because they can put you out of business by calling your loan. That is why it is the last "all in" kind of bet you ever make as an entrepreneur. Cutting costs is the only thing you are really 100% in control of, you can layoff half the staff, sublease your space, and eliminate any sorts of "perks" like meals or bus passes. You probably cut all travel for anyone except the CEO and the CFO (trying to raise more money) and get out of any trade shows or other venues where you have to pay to play (say SXSW for example). You can come out the other side of this stronger as a company but if you've previously had a pretty costly "culture" its going hurt morale big time. And finally you can throw together your IPO, you can take it on the road, and try to get the public to buy it. Often times you'll do a big reverse split to get the share values up to a reasonable road show price, depending on how dead like you are your investment banker may structure it so that they make their money regardless (rachets, special additional stock dispensation, etc) and you are of course taking on a crap ton of additional filing and paperwork and regulation oversight. And a number of companies will die. We don't really need three companies disrupting the taxi business, we only need one. We don't need three or four companies in the casual hospitality space, you really only need one, maybe two. Shopping delivery? A half of one perhaps. Things that are companies and look more like a feature? Well the become features of the company that acquires them. Did you add real value? Did you make something someone really wants? Is it really a market and not a fad? Great you survive. Was it just a gimmick? Or a cute idea that everyone tried once? Well you die. Well all learn something and the world turns around. And if you thought something should have survived and yet it died, then you can look at its life and what it tried and see where the world thought differently than you did. Was it market reach? Operational efficiency? Too many people trying to grab a piece? All great things we learn by trying to build companies that succeed and ones that die.