5 ms·

Can It Be A Huge Bubble If Only A Few People Are Blowing It?

26 points by ssclafani 16y ago

ojbyrne 16y ago
"Again, this “Bubble 2.0″, if it does exist, is mainly just troublesome for investors." Riiiggggght. Just ask all the non-homeowning taxpayers how that works. As I've mentioned previously, significant amount of VC and private equity money actually comes from "institutional investors," namely pension funds, university endowments, etc. If they lose a bunch of value, you think taxpayers aren't going to be on the hook?
- ceejayoz 16y ago
  On top of that, the last thing the economy needs right now is a bunch of VCs and other investors afraid to invest. We're teetering between job growth and job losses already.
- klochner 16y ago
  There isn't enough scale or leverage to make this anything like the dotcom or housing busts. This "bubble" is mostly in early stage startups, doing $2M-$5M rounds, and there aren't enough of these deals to add up to the size of investment in public dotcoms or housing. At worst we're just going to see mediocre VC returns and a lot of busted angel funds, but talking bailouts is hyperbolic. This quote characterizes the difference: “Back in the ’90s, companies got funded for five times the amount that Tumblr raised and didn’t have anything close to a business model,” said Roger Ehrenberg, founder and managing partner of IA Ventures. “People were getting $50 to $200 million a pop and it brought down an entire industry.”
  - chailatte 16y ago
    Secondmarket valuations: Facebook: 50 Billions Twitter: 3 Billions Zynga: 5 Billions http://vator.tv/news/2010-11-30-facebook-valued-at-highest-ever-50-billion http://vator.tv/news/2010-11-30-facebook-valued-at-highest-e...
    - klochner 16y ago
      Those are the extreme examples, of which there are few, and they're not easily traded by the general public. Bubbles almost without exception (please correct me if you have a counter example) are pushed to extremes by the general public (commonly called "mom and pop investors").
      - chailatte 16y ago
        ojbyrne already answered that, you shouldn't put fingers in your ear so much ;) "institutional investors, namely pension funds, university endowments, etc"....I am betting at least one invested in Facebook.
        klochner 16y ago
        you shouldn't put fingers in your ear so much ;) That's on par with "I'm rubber and you're glue . . . ", it's not a logically grounded argument, so there's really no counter argument. "institutional investors, namely pension funds, university endowments, etc"....I am betting at least one invested in Facebook. Again, you're missing the scale required for a market-wide bubble. We're not going to see federal bailouts just because one or two pension funds lost money on facebook.
        sbov 16y ago
        The problem with the housing bubble wasn't that pension funds, etc, invested. The problem was everyone invested huge portions of what they had because you will never lose money when investing in housing. There should be no such illusion when investing in startups. Because of this, you would probably have a hard time finding an institutional investor that has as much of their fate tied to how well Facebook is going to do as you did with housing. There is about 14 trillion in mortgage debt out there. 50 billion doesn't even register.
    - hugh3 16y ago
      Sure, but the actual amount of real money which has ever changed hands for facebook stock is tiny compared to the $50 billion valuation. Besides, even $50 billion is only equivalent to a fifty-buck-a-share swing in the price of AAPL, something that seems to happen every couple of months. So the total amount of money floating around in this bubble is tiny; nothing to be concerned about unless it's your money.
  - jdp23 16y ago
    It's a fair critique of the funding environment in the 1990s ... although I don't remember any companies with pre-IPO valuations of $45B back then.
    - klochner 16y ago
      I think it will become a bubble if a lot of these companies start to IPO (presuming that investors pile in at those valuations).
- okaramian 16y ago
  The comparison to the previous tech bubble isn't fair though. A lot of these companies are actually profitable and the capital cost is far lower than it was a decade ago. That is not to say that things aren't overvalued. But bubble behavior relies on investors investing in things because other people are investing in them so the price bubbles up ("housing is never a bad investment!"). I'd say that, while some of the valuations are high, a lot of these companies are at least profitable, which is more than we can take away from the previous bubble. Prices may end up settling down, but at the end of the day I'd say value is created so it's not too bad.
jdp23 16y ago
is it just me, or does a lot of the "bubble" discussion seem like people sticking their fingers in the ears and saying at great length "I can't hear you I can't hear you I can't hear you and it doesn't matter even if you're right"?
sabat 16y ago
There is no bubble. Repeat: there is no bubble. The last time there were Chicken Littles proclaiming a bubble it was about 2005-2007, and there was no bubble that time either. Yes, there was a problem later on with the housing market and with Goldman Sachs et al -- but that had absolutely nothing to do with an internet bubble. 1- it's only a handful of investments that seem excessive to outsiders 2- the investors are private and are mind-bogglingly rich 3- it's really fun to go around yelling "bubble!" to see if you can crap on someone's parade
- bertil 16y ago
  There is no problem as long as those investing know what they are doing, spend cash they don't need and have valuable skills they can leverage after 50. Chicken Littles like me simply don't want to be quoted by “an idea guy” who wants to “make the new Facebook” in a pitch to a retired plumber. Because anyone know of to use the web and most can sketch a couple of revenue models, a fraction feel like they can invest - that is to say, way too many people. If you say to external investors that high valuation for such or such company is reasonable, they won't be able to make the difference with another project that look very similar to them (both would be bunch of geeks in a garage). I worked for a dishonest guy, helping him pitch: fascination for the billion-dollar idea was alive and well a year ago, and thanks to Sorkin's movie and Groupon financial revelations, they are getting worst. Quick test: if you were not shocked that, in my last sentence I mentioned an “idea” that was worth a lot because ideas are nothing, execution is everything, do not invest (and think hard before working in a start-up). The economic specifics of Silicon Valley (namely signaling, Schelling-type salience) change the assumptions that you need to have a bubble: if a company raises a lot of cash, it gets attention — and that's usually what is decisive to attract talent & revenues. Some have failed, but rarely against all predictions.
  - sabat 16y ago
    I understand your points and pretty much agree with them. My issue is with the term "bubble," because it means different things to different people. Originally, "bubble" means stock market bubble, and when one of those things bursts, it's really bad news. You're using it to mean a relative handful of private investors who may be over-investing. That does not have the same kind of consequences.

26 points by ssclafani 16y ago

"Again, this “Bubble 2.0″, if it does exist, is mainly just troublesome for investors." Riiiggggght. Just ask all the non-homeowning taxpayers how that works. As I've mentioned previously, significant amount of VC and private equity money actually comes from "institutional investors," namely pension funds, university endowments, etc. If they lose a bunch of value, you think taxpayers aren't going to be on the hook?

ceejayoz 16y ago
On top of that, the last thing the economy needs right now is a bunch of VCs and other investors afraid to invest. We're teetering between job growth and job losses already.
klochner 16y ago
There isn't enough scale or leverage to make this anything like the dotcom or housing busts. This "bubble" is mostly in early stage startups, doing $2M-$5M rounds, and there aren't enough of these deals to add up to the size of investment in public dotcoms or housing. At worst we're just going to see mediocre VC returns and a lot of busted angel funds, but talking bailouts is hyperbolic. This quote characterizes the difference: “Back in the ’90s, companies got funded for five times the amount that Tumblr raised and didn’t have anything close to a business model,” said Roger Ehrenberg, founder and managing partner of IA Ventures. “People were getting $50 to $200 million a pop and it brought down an entire industry.”
- chailatte 16y ago
  Secondmarket valuations: Facebook: 50 Billions Twitter: 3 Billions Zynga: 5 Billions http://vator.tv/news/2010-11-30-facebook-valued-at-highest-ever-50-billion http://vator.tv/news/2010-11-30-facebook-valued-at-highest-e...
  - klochner 16y ago
    Those are the extreme examples, of which there are few, and they're not easily traded by the general public. Bubbles almost without exception (please correct me if you have a counter example) are pushed to extremes by the general public (commonly called "mom and pop investors").
    - chailatte 16y ago
      ojbyrne already answered that, you shouldn't put fingers in your ear so much ;) "institutional investors, namely pension funds, university endowments, etc"....I am betting at least one invested in Facebook.
      - klochner 16y ago
        you shouldn't put fingers in your ear so much ;) That's on par with "I'm rubber and you're glue . . . ", it's not a logically grounded argument, so there's really no counter argument. "institutional investors, namely pension funds, university endowments, etc"....I am betting at least one invested in Facebook. Again, you're missing the scale required for a market-wide bubble. We're not going to see federal bailouts just because one or two pension funds lost money on facebook.
      - sbov 16y ago
        The problem with the housing bubble wasn't that pension funds, etc, invested. The problem was everyone invested huge portions of what they had because you will never lose money when investing in housing. There should be no such illusion when investing in startups. Because of this, you would probably have a hard time finding an institutional investor that has as much of their fate tied to how well Facebook is going to do as you did with housing. There is about 14 trillion in mortgage debt out there. 50 billion doesn't even register.
  - hugh3 16y ago
    Sure, but the actual amount of real money which has ever changed hands for facebook stock is tiny compared to the $50 billion valuation. Besides, even $50 billion is only equivalent to a fifty-buck-a-share swing in the price of AAPL, something that seems to happen every couple of months. So the total amount of money floating around in this bubble is tiny; nothing to be concerned about unless it's your money.
- jdp23 16y ago
  It's a fair critique of the funding environment in the 1990s ... although I don't remember any companies with pre-IPO valuations of $45B back then.
  - klochner 16y ago
    I think it will become a bubble if a lot of these companies start to IPO (presuming that investors pile in at those valuations).
okaramian 16y ago
The comparison to the previous tech bubble isn't fair though. A lot of these companies are actually profitable and the capital cost is far lower than it was a decade ago. That is not to say that things aren't overvalued. But bubble behavior relies on investors investing in things because other people are investing in them so the price bubbles up ("housing is never a bad investment!"). I'd say that, while some of the valuations are high, a lot of these companies are at least profitable, which is more than we can take away from the previous bubble. Prices may end up settling down, but at the end of the day I'd say value is created so it's not too bad.

jdp23 16y ago

is it just me, or does a lot of the "bubble" discussion seem like people sticking their fingers in the ears and saying at great length "I can't hear you I can't hear you I can't hear you and it doesn't matter even if you're right"?

sabat 16y ago

There is no bubble. Repeat: there is no bubble. The last time there were Chicken Littles proclaiming a bubble it was about 2005-2007, and there was no bubble that time either. Yes, there was a problem later on with the housing market and with Goldman Sachs et al -- but that had absolutely nothing to do with an internet bubble. 1- it's only a handful of investments that seem excessive to outsiders 2- the investors are private and are mind-bogglingly rich 3- it's really fun to go around yelling "bubble!" to see if you can crap on someone's parade

bertil 16y ago
There is no problem as long as those investing know what they are doing, spend cash they don't need and have valuable skills they can leverage after 50. Chicken Littles like me simply don't want to be quoted by “an idea guy” who wants to “make the new Facebook” in a pitch to a retired plumber. Because anyone know of to use the web and most can sketch a couple of revenue models, a fraction feel like they can invest - that is to say, way too many people. If you say to external investors that high valuation for such or such company is reasonable, they won't be able to make the difference with another project that look very similar to them (both would be bunch of geeks in a garage). I worked for a dishonest guy, helping him pitch: fascination for the billion-dollar idea was alive and well a year ago, and thanks to Sorkin's movie and Groupon financial revelations, they are getting worst. Quick test: if you were not shocked that, in my last sentence I mentioned an “idea” that was worth a lot because ideas are nothing, execution is everything, do not invest (and think hard before working in a start-up). The economic specifics of Silicon Valley (namely signaling, Schelling-type salience) change the assumptions that you need to have a bubble: if a company raises a lot of cash, it gets attention — and that's usually what is decisive to attract talent & revenues. Some have failed, but rarely against all predictions.
- sabat 16y ago
  I understand your points and pretty much agree with them. My issue is with the term "bubble," because it means different things to different people. Originally, "bubble" means stock market bubble, and when one of those things bursts, it's really bad news. You're using it to mean a relative handful of private investors who may be over-investing. That does not have the same kind of consequences.