5 ms·

The article makes the point that valuations are high, not necessarily because of accurate valuations, but because 'dumb money' wants to get in on the deal. It t

The article makes the point that valuations are high, not necessarily because of accurate valuations, but because 'dumb money' wants to get in on the deal. It then goes on to describe dumb money excoriatingly, covering a lot of rich people: Dumb money is a hedge-funder who’s jealous of a V.C. Dumb money is sovereign wealth. Dumb money is an Emirati home office. Dumb money is a Facebook millionaire in a Maserati who wants to look like a player. Dumb money wants to get in on tech because it’s a box to check off. Dumb money isn’t in it for the long run. Dumb money doesn’t actually care about the technology. Dumb money doesn’t create value.

daveguy 10y ago
Dumb money inflating valuations is pretty much the definition of a bubble. Another interesting tidbit: over 200 private tech terms are currently considered unicorns. 200 of what is supposed to be a rare phenomenon. When the NYT starts talking about it you know the structure of the bubble is weak. Stories like this only popped up in the months before the housing crash. Prior to that all the stories were all about what a great investment real estate is. Bubbles are odd things though, it could keep going until there are 400 unicorns, but I doubt it.
- paavokoya 10y ago
  “The market can stay irrational longer than you can stay solvent.”
  - daveguy 10y ago
    I agree 100%! That's why I said the bubble could continue until there are 400 unicorns (or just 50 more), regargless a continuation would exhaust my solvency. I wouldn't bet against it because I don't know if it will pop tomorrow or a year from now or later, but I am almost certain we are in somewhere in the top 25% of a bubble. The breathless arguments that this will continue indefinitely has slowed.
    - dnautics 10y ago
      If we're in the top 25% of a bubble you should be able to calculate an upper limit to when it will pop. If you say you don't know when it will pop that means you don't know how close we are to the end because these things are characterized by measurable growth dynamics and spend very little time at the top.
- deleted 10y ago
  [deleted]
- morgante 10y ago
  > When the NYT starts talking about it you know the structure of the bubble is weak. The NYT (together with all media) has been saying there's a bubble for years. They've written nearly 200 articles about this bubble between 2008 and 2015. For example: http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-shows-signs-of-reinflating/ http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-show... There will always be naysayers. Plenty of people thought the notion of Facebook being worth even $50bn was ludicrous. Bubbles exist, but so does growth. It's all but impossible to differentiate the two until after the fact. That being said, we probably are in something of a bubble.
  - cardiffspaceman 10y ago
    I always say that the crash comes after the last skeptic buys in. I honestly don't have any anecdotes to specifically back that up, but plenty of people at cocktail parties have nodded in agreement.
    - thaumasiotes 10y ago
      This would immediately imply that no one ever gets rich shorting the crash.
      - cardiffspaceman 10y ago
        Because no skeptics would be short when the crash came.
        ktRolster 10y ago
        But of course, some people do make money in the crashes. John Paulson made billions in the 2008 crash. Mark Cuban at least forsaw the .com bomb.
doctorpangloss 10y ago
I think it's a good summary of the tone and generalities that the journalist likely heard from the investors he spoke with. Does it sound ridiculous? Yeah. Professional investors complain about people whose only qualification to invest is their bank account. They do realize they are investors right? Well a dollar is a dollar, it doesn't have a brand. The scary thing to professional investors isn't dumb money and large valuations per se. It's the competition that gets the best deals just because it offers more money. How ironic. To take a more nuanced opinion, I don't think the distinct is between dumb and smart money, but between branded and unbranded money. There is in fact somewhat of a "brand" for a dollar. If A16Z invests in you, their dollars have some built-in, unwritten-but-real future bonus in the professional VC circus that will pile onto your next deal. Some nobody can offer the same deal on paper today as A16Z, but it won't guarantee that brand-name pile on in a later investment. The question is, how often does the A16Z actually pay off in that future-bonus way, or how many VC firms actually provide a meaningful bonus in that way? If the "Emirati home office" just offers more money up front, the branded dollar's future brand bonus is less valuable in comparison. This helps explain a firm like A16Z's increasingly generous (and preposterous) first investments. Increasing competition, not "dumb money," has negated a valuable competitive advantage American VC firms once had.
x0x0 10y ago
Well, this cuts a bit close to home The weird thing about dumb money, unfortunately, is that it can act with fiendish intelligence, insisting on stipulations that guarantee returns at the expense of founders, employees and other investors.

daveguy 10y ago

Dumb money inflating valuations is pretty much the definition of a bubble. Another interesting tidbit: over 200 private tech terms are currently considered unicorns. 200 of what is supposed to be a rare phenomenon. When the NYT starts talking about it you know the structure of the bubble is weak. Stories like this only popped up in the months before the housing crash. Prior to that all the stories were all about what a great investment real estate is. Bubbles are odd things though, it could keep going until there are 400 unicorns, but I doubt it.

paavokoya 10y ago
“The market can stay irrational longer than you can stay solvent.”
- daveguy 10y ago
  I agree 100%! That's why I said the bubble could continue until there are 400 unicorns (or just 50 more), regargless a continuation would exhaust my solvency. I wouldn't bet against it because I don't know if it will pop tomorrow or a year from now or later, but I am almost certain we are in somewhere in the top 25% of a bubble. The breathless arguments that this will continue indefinitely has slowed.
  - dnautics 10y ago
    If we're in the top 25% of a bubble you should be able to calculate an upper limit to when it will pop. If you say you don't know when it will pop that means you don't know how close we are to the end because these things are characterized by measurable growth dynamics and spend very little time at the top.
deleted 10y ago
[deleted]
morgante 10y ago
> When the NYT starts talking about it you know the structure of the bubble is weak. The NYT (together with all media) has been saying there's a bubble for years. They've written nearly 200 articles about this bubble between 2008 and 2015. For example: http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-shows-signs-of-reinflating/ http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-show... There will always be naysayers. Plenty of people thought the notion of Facebook being worth even $50bn was ludicrous. Bubbles exist, but so does growth. It's all but impossible to differentiate the two until after the fact. That being said, we probably are in something of a bubble.
- cardiffspaceman 10y ago
  I always say that the crash comes after the last skeptic buys in. I honestly don't have any anecdotes to specifically back that up, but plenty of people at cocktail parties have nodded in agreement.
  - thaumasiotes 10y ago
    This would immediately imply that no one ever gets rich shorting the crash.
    - cardiffspaceman 10y ago
      Because no skeptics would be short when the crash came.
      - ktRolster 10y ago
        But of course, some people do make money in the crashes. John Paulson made billions in the 2008 crash. Mark Cuban at least forsaw the .com bomb.

doctorpangloss 10y ago

I think it's a good summary of the tone and generalities that the journalist likely heard from the investors he spoke with. Does it sound ridiculous? Yeah. Professional investors complain about people whose only qualification to invest is their bank account. They do realize they are investors right? Well a dollar is a dollar, it doesn't have a brand. The scary thing to professional investors isn't dumb money and large valuations per se. It's the competition that gets the best deals just because it offers more money. How ironic. To take a more nuanced opinion, I don't think the distinct is between dumb and smart money, but between branded and unbranded money. There is in fact somewhat of a "brand" for a dollar. If A16Z invests in you, their dollars have some built-in, unwritten-but-real future bonus in the professional VC circus that will pile onto your next deal. Some nobody can offer the same deal on paper today as A16Z, but it won't guarantee that brand-name pile on in a later investment. The question is, how often does the A16Z actually pay off in that future-bonus way, or how many VC firms actually provide a meaningful bonus in that way? If the "Emirati home office" just offers more money up front, the branded dollar's future brand bonus is less valuable in comparison. This helps explain a firm like A16Z's increasingly generous (and preposterous) first investments. Increasing competition, not "dumb money," has negated a valuable competitive advantage American VC firms once had.

x0x0 10y ago

Well, this cuts a bit close to home The weird thing about dumb money, unfortunately, is that it can act with fiendish intelligence, insisting on stipulations that guarantee returns at the expense of founders, employees and other investors.