11 ms·

The Tech Bubble Didn’t Burst This Year

141 points by bilifuduo 10y ago

deleted 10y ago
[deleted]
apsec112 10y ago
Hmmmm... tech is in a bubble, where have we heard this before... http://blog.samaltman.com/were-in-a-bubble http://blog.samaltman.com/were-in-a-bubble Other than the company names, has anything really changed since the Richter Scales put out "Here Comes Another Bubble" in 2007? "Make yourself a million bucks, partly skill, mostly luck: now you can afford a down payment on a small house."
- ghaff 10y ago
  >has anything really changed You can't afford a down payment on a small house in some areas any longer?
firasd 10y ago
Good article. It's true that tech in general may be facing challenges because smartphones are not new anymore, but I was especially annoyed at the On-Demand bubble from last year, which felt to me like a "fake startup" trend. Saying the total addressable market of food is in the trillions so you're gonna make a food delivery app and give away a dollar for 80 cents just felt to me like, is this really a 'tech' business? There are no margins.
- CN7R 10y ago
  To be fair, software has higher profit margins than hardware. Even higher when you make that software as a service. A lot of the margins is diminished due to the physical upkeep, which can be argued as "hardware". I would agree that on-demand services, for the most part, aren't innovating: they're just facilitating consumer-merchant relationships.
allenleein 10y ago
For anyone who wants to dig more about tech bubbles: Silicon Valley — The Wall Street Without Bubble https://medium.com/startup-blink/silicon-valley-the-wall-street-without-bubble-c5bc68135df#.5fpccngr2 https://medium.com/startup-blink/silicon-valley-the-wall-str...
AndrewKemendo 10y ago
To me the real scandal here is that while funding of startups is down, Venture firm funding is up and cash in the bank is the highest since 2000 [1]. So that means - like corporations currently - these funds are just sitting on cash [2]. I'm curious why LP's aren't up in arms (maybe they are privately), but my guess is that the answer venture funds give their LP's are that they are being prudent so that they are protected from the impending "crash" and can start investing when prices are lower. What seems to be happening as a result is that venture funds are starting to invest more like Banks - looking for more traditional metrics like ARR that can protect them on the downside with the caveat that they still expect power law distribution of returns. So basically they want to invest in potentially billion dollar companies that are cash flow positive from the start. IMO this is trying to have it all, and discourages moonshot bets that are capital intensive before finding their market. It's a judgment call whether this is "good" or not, but it seems to me to counter the original goal of venture. [1] http://www.wsj.com/articles/funds-flow-to-venture-firms-1459295426 http://www.wsj.com/articles/funds-flow-to-venture-firms-1459... [2] https://www.bloomberg.com/news/articles/2016-03-09/more-venture-investors-are-sitting-on-the-sidelines https://www.bloomberg.com/news/articles/2016-03-09/more-vent...
- smallnamespace 10y ago
  Sounds like the venture funds are actually doing their jobs then, namely trying to get the best possible return and not just blindly throwing money at everyone who walks through the door. As an industry matures, returns to capital should naturally fall. This is a normal process, as the 'obvious' opportunities are systematically exploited, and the industry itself creates large incumbents that compete with startups. The fact that venture funds are smoothly pivoting is a good thing, regardless of whether that's what LPs thought they were signing up for. If LPs are really upset at cash sitting around, they can (eventually) ask for their money back and find a different fund; that can't happen if the fund makes bad investments and loses the principal. The worst possible outcome would be if funds forced themselves to keep doing business as usual until everything blew up.
- paulsutter 10y ago
  Venture funds are not actually sitting on cash. In order to optimize IRR, they do capital calls when they need money to invest instead of taking the money all up front. The advantage is that they can calculate their rate of return based on the period of their investment rather than from the first day of the fund. The disadvantage is that during market upheaval (like the 2008 crises), there is a risk that limited partners (the investors in the funds) default on a capital call which can be a serious problem[1]. So no, VCs are not hoping for a crisis. [1] http://www.pepperlaw.com/publications/capital-call-defaults-can-have-severe-consequences-for-funds-2010-04-22/ http://www.pepperlaw.com/publications/capital-call-defaults-...
tracker1 10y ago
Investing unwisely doesn't mean it's all going to come crashing down. There are a lot of companies being much more responsible right now. There are more companies than ever not going deep into VC over-reaching evaluations, that are cash positive. I do think there will be some fallout. I think the same is trending in real estate again too in a lot of markets. Economies are cyclical, and any time you see double digit growth in any market for over half a decade, there's usually a dip at the end... how big depends on how over-inflated that market is.
rapsey 10y ago
Yes there is a bubble. But it's in bonds. Once that bursts everything will hurt.
- rayuela 10y ago
  This! Lately a lot of funding has been structured to look a lot like bonds as well. Fixed income markets are where the troubles will start.
pault 10y ago
> Uber, valued at about $69 billion, is the most valuable American car company by some margin, worth more than General Motors and Fiat Chrysler combined. Can someone explain this to me? What competitive edge does Uber have that would stop literally any well-funded company from entering their market as a competitor? I know they have pervasive brand awareness and a large driver network but does that really justify a $69B valuation? What's to stop consumers and drivers from jumping ship en masse?
- TheSpiceIsLife 10y ago
  Hang on, Uber isn't a car company. The other two manufacture cars, Uber manufactures, well, nothing.
  - CN7R 10y ago
    I would argue that a lot of new companies like Uber and AirBnb are information brokers -- they provide a service of connecting demand (consumers) to a previously untapped supply (merchants). The economic value they have comes from 'creating' a market and being first in it (brand recognition), which gives them a competitive edge over newcomers. In addition, from investors, they have a 'war chest' which allows them to make the barriers to entry harder. Some of these companies, I think, have realized that they are too dependent on the will of their suppliers; so now, they're actually manufacturing or creating something tied solely to the company. For example, Uber investing in self-driving cars.
  - majewsky 10y ago
    Last time I looked, Uber manufactured lawsuits and policy debates. :)
- imron 10y ago
  > What competitive edge does Uber have > I know they have pervasive brand awareness and a large driver network Look what happened to Uber in China where a local competitor had pervasive brand awareness and a large driver network before Uber got established there. Uber bled cash, and bled some more cash, and bled some more cash while trying to build market share, and then finally gave up and sold their business to their competitor. That's basically what's stopping a well-funded company from entering the market as a competitor, an aversion to bleeding cash to build market share which they might not ever be able to do.
Animats 10y ago
Who's big and a steady money-loser? Twitter? Uber? Who else? Investors may demand liquidation before money-losing companies with cash run through all their capital. Stockholders have the power to force that, unless there's some two-tier stock deal such as Google and Facebook have, but Twitter does not. What's the next big thing? - Self-driving cars that actually work are about three years from commercial deployment. What businesses will be created around that? Automated parking garages? Car-sharing? LIDAR manufacturing? - In a few months, the Chevy Bolt will be shipping. More charging stations will be needed. Over the next decade, a need for a huge number of charging points will appear. Somebody has to build those. - Surveillance cameras, including car dashcams, coupled to face recognition and AI. Big Brother where something is always watching. But who? Google? Samsung? ADT? G4S? NSA? - The blue-sky possibility: Lockheed-Martin's Skunk Works succeeds in building a usable fusion reactor. They're not saying much other than that they've made enough progress to justify investing more of their own funds. The Skunk Works has a good track record of doing things others thought impossible. (The U-2, the SR-71, the F-117, the F-22, and probably some things that haven't been made public yet.) If that works, the world changes in a big way. Probably not the next big thing: - Virtual reality. There's still no killer app, and we're into the holiday shopping season. The hardware problem has been solved, and nobody cares. It's the new 3D TV. - 3D printing. There are lots of good 3D printers, and they're bought by the same people who buy milling machines. They're a useful industrial tool. But home printing? Not happening. - Internet of Things. It's mostly gimmicks so far. IP-addressable lightbulbs just aren't that useful. There's going to be a lot of crap manufactured, but it may just be a fad like hoverboards and CB radio. - Hydrogen-powered cars. This is Toyota's answer to electric cars, and they're on sale now in California. They've sold about 700 of them in the US so far.
- hobofan 10y ago
  Internet of Things != Smart home I also often tend to forget that, but unlike the Smart home, where I agree with your opinion, IoT for industrial applications like remote monitoring and failure prediction of mechanical parts seems to develop pretty well.
  - zdkl 10y ago
jerianasmith 10y ago
Right there is bubble.
pfarnsworth 10y ago
I used to think there was going to be a crash, but not anymore. We have just experienced a controlled deflation, probably the first time at least in my lifetime. Most/many tech companies got deflated but somehow we avoided a massive crash this time and sensibilities have increased without mass chaos.
- sergiosgc 10y ago
  It was actually expectable. I read Innovation and Entrepreneurship by Peter Drucker back when we were living the first bubble, and it is amazing how much the dot-com bubble followed previous technology disruption bubbles. The book seriously predates the dot-com bubble. It does not mention it. It's just that it perfectly fitted the events back then, and still does; something that is a hallmark of quality. According to Drucker, a first boom and crash is followed by a more shallow boom and slowdown, and then the tech is absorbed into everyday life and causes no more large market fluctuations.
- damonpace 10y ago
  Word of Caution: The Dot-Com & Real Estate bubbles happened slowly and then all at once. When a bubble slows down, everyone says we're just going through a correction. The possibility of a complete crash is still there in the next year or so. Especially, since a mega-hit ($10b+ val) hasn't been created in SV in over 5 years. Investors need these mega-hits in order to justify the risks they take and there hasn't been a break-out started since 2010.
  - crush_xc 10y ago
    Snapchat?
    - toomuchtodo 10y ago
      Is SnapChat's valuation anywhere near inline with their revenue/profitability (or lack thereof)?
    - damonpace 10y ago
bedhead 10y ago
Uber's valuation in particular worries me. Uber's product is 90 pixels on your phone - that's it. Behind that is computer code and an admittedly powerful network effect among drivers and riders. But I have to wonder about that power of that network effect over time, especially with this race to develop self-driving cars and other similar things. Meanwhile, Uber's business practices are, shall we say, often times questionable. Customers increasingly dislike the product, whether it's surge pricing, or dirty cars, or lousy drivers. I just get nervous by these companies whose products are a single app on your phone and some computer code. This is generally not a great setup for being worth a lot of money 20 years from now.
- tempodox 10y ago
  If you can look 20 yrs into the future you must be the richest man on the planet.
  - bedhead 10y ago
    Yes, I am.
yalogin 10y ago
If we are really expecting a downturn what will happen to the self driving car cycle that is barely beginning now? These companies need much more funding than software startups.
DannyB2 10y ago
Hey, the year isn't over yet.
mrcactu5 10y ago
I get the sense startups were more optimistic in previous years. Emphasis these days is more about making money. Perhaps I could be talking to the wrong people.
ry4n413 10y ago
Look, as the probably only credible person here to speak on Stock Valuations. Tech is not, nor is any other specific Industry or Sector the issue here. The issue here is interests rate.

141 points by bilifuduo 10y ago

deleted 10y ago

[deleted]

Hmmmm... tech is in a bubble, where have we heard this before... http://blog.samaltman.com/were-in-a-bubble http://blog.samaltman.com/were-in-a-bubble Other than the company names, has anything really changed since the Richter Scales put out "Here Comes Another Bubble" in 2007? "Make yourself a million bucks, partly skill, mostly luck: now you can afford a down payment on a small house."

ghaff 10y ago
>has anything really changed You can't afford a down payment on a small house in some areas any longer?

firasd 10y ago

Good article. It's true that tech in general may be facing challenges because smartphones are not new anymore, but I was especially annoyed at the On-Demand bubble from last year, which felt to me like a "fake startup" trend. Saying the total addressable market of food is in the trillions so you're gonna make a food delivery app and give away a dollar for 80 cents just felt to me like, is this really a 'tech' business? There are no margins.

CN7R 10y ago
To be fair, software has higher profit margins than hardware. Even higher when you make that software as a service. A lot of the margins is diminished due to the physical upkeep, which can be argued as "hardware". I would agree that on-demand services, for the most part, aren't innovating: they're just facilitating consumer-merchant relationships.

allenleein 10y ago

For anyone who wants to dig more about tech bubbles: Silicon Valley — The Wall Street Without Bubble https://medium.com/startup-blink/silicon-valley-the-wall-street-without-bubble-c5bc68135df#.5fpccngr2 https://medium.com/startup-blink/silicon-valley-the-wall-str...

AndrewKemendo 10y ago

To me the real scandal here is that while funding of startups is down, Venture firm funding is up and cash in the bank is the highest since 2000 [1]. So that means - like corporations currently - these funds are just sitting on cash [2]. I'm curious why LP's aren't up in arms (maybe they are privately), but my guess is that the answer venture funds give their LP's are that they are being prudent so that they are protected from the impending "crash" and can start investing when prices are lower. What seems to be happening as a result is that venture funds are starting to invest more like Banks - looking for more traditional metrics like ARR that can protect them on the downside with the caveat that they still expect power law distribution of returns. So basically they want to invest in potentially billion dollar companies that are cash flow positive from the start. IMO this is trying to have it all, and discourages moonshot bets that are capital intensive before finding their market. It's a judgment call whether this is "good" or not, but it seems to me to counter the original goal of venture. [1] http://www.wsj.com/articles/funds-flow-to-venture-firms-1459295426 http://www.wsj.com/articles/funds-flow-to-venture-firms-1459... [2] https://www.bloomberg.com/news/articles/2016-03-09/more-venture-investors-are-sitting-on-the-sidelines https://www.bloomberg.com/news/articles/2016-03-09/more-vent...

smallnamespace 10y ago
Sounds like the venture funds are actually doing their jobs then, namely trying to get the best possible return and not just blindly throwing money at everyone who walks through the door. As an industry matures, returns to capital should naturally fall. This is a normal process, as the 'obvious' opportunities are systematically exploited, and the industry itself creates large incumbents that compete with startups. The fact that venture funds are smoothly pivoting is a good thing, regardless of whether that's what LPs thought they were signing up for. If LPs are really upset at cash sitting around, they can (eventually) ask for their money back and find a different fund; that can't happen if the fund makes bad investments and loses the principal. The worst possible outcome would be if funds forced themselves to keep doing business as usual until everything blew up.
paulsutter 10y ago
Venture funds are not actually sitting on cash. In order to optimize IRR, they do capital calls when they need money to invest instead of taking the money all up front. The advantage is that they can calculate their rate of return based on the period of their investment rather than from the first day of the fund. The disadvantage is that during market upheaval (like the 2008 crises), there is a risk that limited partners (the investors in the funds) default on a capital call which can be a serious problem[1]. So no, VCs are not hoping for a crisis. [1] http://www.pepperlaw.com/publications/capital-call-defaults-can-have-severe-consequences-for-funds-2010-04-22/ http://www.pepperlaw.com/publications/capital-call-defaults-...

tracker1 10y ago

Investing unwisely doesn't mean it's all going to come crashing down. There are a lot of companies being much more responsible right now. There are more companies than ever not going deep into VC over-reaching evaluations, that are cash positive. I do think there will be some fallout. I think the same is trending in real estate again too in a lot of markets. Economies are cyclical, and any time you see double digit growth in any market for over half a decade, there's usually a dip at the end... how big depends on how over-inflated that market is.

rapsey 10y ago

Yes there is a bubble. But it's in bonds. Once that bursts everything will hurt.

rayuela 10y ago
This! Lately a lot of funding has been structured to look a lot like bonds as well. Fixed income markets are where the troubles will start.

pault 10y ago

> Uber, valued at about $69 billion, is the most valuable American car company by some margin, worth more than General Motors and Fiat Chrysler combined. Can someone explain this to me? What competitive edge does Uber have that would stop literally any well-funded company from entering their market as a competitor? I know they have pervasive brand awareness and a large driver network but does that really justify a $69B valuation? What's to stop consumers and drivers from jumping ship en masse?

TheSpiceIsLife 10y ago
Hang on, Uber isn't a car company. The other two manufacture cars, Uber manufactures, well, nothing.
- CN7R 10y ago
  I would argue that a lot of new companies like Uber and AirBnb are information brokers -- they provide a service of connecting demand (consumers) to a previously untapped supply (merchants). The economic value they have comes from 'creating' a market and being first in it (brand recognition), which gives them a competitive edge over newcomers. In addition, from investors, they have a 'war chest' which allows them to make the barriers to entry harder. Some of these companies, I think, have realized that they are too dependent on the will of their suppliers; so now, they're actually manufacturing or creating something tied solely to the company. For example, Uber investing in self-driving cars.
- majewsky 10y ago
  Last time I looked, Uber manufactured lawsuits and policy debates. :)
imron 10y ago
> What competitive edge does Uber have > I know they have pervasive brand awareness and a large driver network Look what happened to Uber in China where a local competitor had pervasive brand awareness and a large driver network before Uber got established there. Uber bled cash, and bled some more cash, and bled some more cash while trying to build market share, and then finally gave up and sold their business to their competitor. That's basically what's stopping a well-funded company from entering the market as a competitor, an aversion to bleeding cash to build market share which they might not ever be able to do.

Animats 10y ago

Who's big and a steady money-loser? Twitter? Uber? Who else? Investors may demand liquidation before money-losing companies with cash run through all their capital. Stockholders have the power to force that, unless there's some two-tier stock deal such as Google and Facebook have, but Twitter does not. What's the next big thing? - Self-driving cars that actually work are about three years from commercial deployment. What businesses will be created around that? Automated parking garages? Car-sharing? LIDAR manufacturing? - In a few months, the Chevy Bolt will be shipping. More charging stations will be needed. Over the next decade, a need for a huge number of charging points will appear. Somebody has to build those. - Surveillance cameras, including car dashcams, coupled to face recognition and AI. Big Brother where something is always watching. But who? Google? Samsung? ADT? G4S? NSA? - The blue-sky possibility: Lockheed-Martin's Skunk Works succeeds in building a usable fusion reactor. They're not saying much other than that they've made enough progress to justify investing more of their own funds. The Skunk Works has a good track record of doing things others thought impossible. (The U-2, the SR-71, the F-117, the F-22, and probably some things that haven't been made public yet.) If that works, the world changes in a big way. Probably not the next big thing: - Virtual reality. There's still no killer app, and we're into the holiday shopping season. The hardware problem has been solved, and nobody cares. It's the new 3D TV. - 3D printing. There are lots of good 3D printers, and they're bought by the same people who buy milling machines. They're a useful industrial tool. But home printing? Not happening. - Internet of Things. It's mostly gimmicks so far. IP-addressable lightbulbs just aren't that useful. There's going to be a lot of crap manufactured, but it may just be a fad like hoverboards and CB radio. - Hydrogen-powered cars. This is Toyota's answer to electric cars, and they're on sale now in California. They've sold about 700 of them in the US so far.

hobofan 10y ago
Internet of Things != Smart home I also often tend to forget that, but unlike the Smart home, where I agree with your opinion, IoT for industrial applications like remote monitoring and failure prediction of mechanical parts seems to develop pretty well.
- zdkl 10y ago

jerianasmith 10y ago

Right there is bubble.

pfarnsworth 10y ago

I used to think there was going to be a crash, but not anymore. We have just experienced a controlled deflation, probably the first time at least in my lifetime. Most/many tech companies got deflated but somehow we avoided a massive crash this time and sensibilities have increased without mass chaos.

sergiosgc 10y ago
It was actually expectable. I read Innovation and Entrepreneurship by Peter Drucker back when we were living the first bubble, and it is amazing how much the dot-com bubble followed previous technology disruption bubbles. The book seriously predates the dot-com bubble. It does not mention it. It's just that it perfectly fitted the events back then, and still does; something that is a hallmark of quality. According to Drucker, a first boom and crash is followed by a more shallow boom and slowdown, and then the tech is absorbed into everyday life and causes no more large market fluctuations.
damonpace 10y ago
Word of Caution: The Dot-Com & Real Estate bubbles happened slowly and then all at once. When a bubble slows down, everyone says we're just going through a correction. The possibility of a complete crash is still there in the next year or so. Especially, since a mega-hit ($10b+ val) hasn't been created in SV in over 5 years. Investors need these mega-hits in order to justify the risks they take and there hasn't been a break-out started since 2010.
- crush_xc 10y ago
  Snapchat?
  - toomuchtodo 10y ago
    Is SnapChat's valuation anywhere near inline with their revenue/profitability (or lack thereof)?
  - damonpace 10y ago

bedhead 10y ago

Uber's valuation in particular worries me. Uber's product is 90 pixels on your phone - that's it. Behind that is computer code and an admittedly powerful network effect among drivers and riders. But I have to wonder about that power of that network effect over time, especially with this race to develop self-driving cars and other similar things. Meanwhile, Uber's business practices are, shall we say, often times questionable. Customers increasingly dislike the product, whether it's surge pricing, or dirty cars, or lousy drivers. I just get nervous by these companies whose products are a single app on your phone and some computer code. This is generally not a great setup for being worth a lot of money 20 years from now.

tempodox 10y ago
If you can look 20 yrs into the future you must be the richest man on the planet.
- bedhead 10y ago
  Yes, I am.

yalogin 10y ago

If we are really expecting a downturn what will happen to the self driving car cycle that is barely beginning now? These companies need much more funding than software startups.

DannyB2 10y ago

Hey, the year isn't over yet.

mrcactu5 10y ago

I get the sense startups were more optimistic in previous years. Emphasis these days is more about making money. Perhaps I could be talking to the wrong people.

ry4n413 10y ago

Look, as the probably only credible person here to speak on Stock Valuations. Tech is not, nor is any other specific Industry or Sector the issue here. The issue here is interests rate.