5 ms·

Are venture capitalists inflating the bubble?

15 points by gibsonf1 17y ago

deleted 17y ago
[deleted]
sabat 17y ago
Maybe in the social space, except that there are social companies with serious profits (Zynga). But overall? VCs are still not investing at a significant rate. It's better than it was a year ago, but their funds are still much lower than previously. I think this story itself is a bubble (i.e. a reporter in search of something to report on).
- hugh3 17y ago
  There's always some sort of bubble in the VC industry. Two years ago stupid money was being thrown at anything with "clean tech" in the business plan. Now it's "social". Two years from now it might be... [actually I've racked my brain and can't think of anything plausible. If you figure it out please let me know and we'll be rich circa 2012].
  - jerf 17y ago
    Peer-to-peer social, correcting the dominance of Facebook by re-opening the platform. Valuations collapse after a year when it is noticed that peer-to-peer social makes it much harder to add a lot of ads when your clients can leave easily, and even profitability will difficult because the result is not a magic money machine, but the total commoditization of "social" websites.
  - ryanhuff 17y ago
    Its always good to zig when others are zagging. As dollars chase the flavor of the month, there are likely voids in other markets. Perhaps enterprise software?
iamelgringo 17y ago
I don't consider it a bubble unless there's a ton of "normals" pouring money into a market, artificially inflating the prices. The dot com bubble happened because companies IPO's quickly and early and "normals" poured money into companies like pets.com. The real estate bubble happened because "normals" started pouring money into buying and flipping real estate. In both cases, the valuations were way out of line because so many "normals" had poured money into those investments, and millions of "normals" lost money when valuations came back into line with a non-speculator induced feeding frenzy. Rhere are a handful of companies that are getting crazy high valuations by a handful of investors competing with each other to get skin in the game. But, a dozen VC firms competing with each other to give Groupon a crazy high valuation doesn't a bubble make. It just means that those companies are probably going to have to IPO or get bought for $500 million + for the investors to get their money back. I suspect that what we're seeing is investors being hungry after the stock market crash of the last few years. Now that the investor's stock portfolio's have regained 60% of the value they lost the last 2 years, they are playing less defense with their money, and are willing to put some money on some risky bets with startups. And we're seeing the feeding frenzy with the valuations of a handful of startups.
- tewks 17y ago
  Great point regarding the lack of involvement of "normals". However, the presence of "normals" alters only the magnitude of a phenomenon, not the shape. I'd suspect the shape of a phenomenon wouldn't necessarily change due to the presence of "normals" because it can be shown that "normals" don't make better or worse decisions on average than non-"normals". Furthermore, many "normals" in the dot-com situation were guided there directly or indirectly by overeager pension funds, brokers, analysts, and the like (non-"normals").

15 points by gibsonf1 17y ago

deleted 17y ago

[deleted]

sabat 17y ago

Maybe in the social space, except that there are social companies with serious profits (Zynga). But overall? VCs are still not investing at a significant rate. It's better than it was a year ago, but their funds are still much lower than previously. I think this story itself is a bubble (i.e. a reporter in search of something to report on).

hugh3 17y ago
There's always some sort of bubble in the VC industry. Two years ago stupid money was being thrown at anything with "clean tech" in the business plan. Now it's "social". Two years from now it might be... [actually I've racked my brain and can't think of anything plausible. If you figure it out please let me know and we'll be rich circa 2012].
- jerf 17y ago
  Peer-to-peer social, correcting the dominance of Facebook by re-opening the platform. Valuations collapse after a year when it is noticed that peer-to-peer social makes it much harder to add a lot of ads when your clients can leave easily, and even profitability will difficult because the result is not a magic money machine, but the total commoditization of "social" websites.
- ryanhuff 17y ago
  Its always good to zig when others are zagging. As dollars chase the flavor of the month, there are likely voids in other markets. Perhaps enterprise software?

iamelgringo 17y ago

I don't consider it a bubble unless there's a ton of "normals" pouring money into a market, artificially inflating the prices. The dot com bubble happened because companies IPO's quickly and early and "normals" poured money into companies like pets.com. The real estate bubble happened because "normals" started pouring money into buying and flipping real estate. In both cases, the valuations were way out of line because so many "normals" had poured money into those investments, and millions of "normals" lost money when valuations came back into line with a non-speculator induced feeding frenzy. Rhere are a handful of companies that are getting crazy high valuations by a handful of investors competing with each other to get skin in the game. But, a dozen VC firms competing with each other to give Groupon a crazy high valuation doesn't a bubble make. It just means that those companies are probably going to have to IPO or get bought for $500 million + for the investors to get their money back. I suspect that what we're seeing is investors being hungry after the stock market crash of the last few years. Now that the investor's stock portfolio's have regained 60% of the value they lost the last 2 years, they are playing less defense with their money, and are willing to put some money on some risky bets with startups. And we're seeing the feeding frenzy with the valuations of a handful of startups.

tewks 17y ago
Great point regarding the lack of involvement of "normals". However, the presence of "normals" alters only the magnitude of a phenomenon, not the shape. I'd suspect the shape of a phenomenon wouldn't necessarily change due to the presence of "normals" because it can be shown that "normals" don't make better or worse decisions on average than non-"normals". Furthermore, many "normals" in the dot-com situation were guided there directly or indirectly by overeager pension funds, brokers, analysts, and the like (non-"normals").