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One difference is its all private equity. These companies are not IPOing yet. There isn't a mad dash by the masses to buy tech stocks (or buy and flip their hou

by hop 16y ago

One difference is its all private equity. These companies are not IPOing yet. There isn't a mad dash by the masses to buy tech stocks (or buy and flip their houses for that matter.) All these gains and losses are pretty well contained by venture funds and Angels - it certainly could be a bubble for them, but it will have nowhere near the wide ranging affects of the tech bubble from a decade ago because there are so few people involved and its orders of magnitude less in total valuations.

eladgil 16y ago
Totally agree. I address this in the section "Ways this inflationary period (if it exists) is different from 1997-2000". I am sure I missed a bunch of other ways it is different. I think this inflationary period is probably closer to past ones (e.g. microcomputer/peripherals in the early 80s) then the wide spread financial asset bubble of 2000.
- Straubiz 16y ago
  Very thoughtful piece, thanks a lot for sharing this. It seems so far that M&A valuations are following up serie A valuations (see Google & Path for instance). The bubble, if it exists, is no longer limited to the seed ecosystem.
  - eladgil 16y ago
    Yeah, I think that is indeed the case - it is moving into series A territory. Big question is if it will go upstream to series B/C/D where the big $s are ... :)
gatsby 16y ago
Very important distinction, but I think we're already seeing these lofty valuations being passed to individual investors (via "special vehicles," secondary markets, limited partners, etc.) Most bubbles trickle down. VCs will gladly partner with companies at high valuations because eventually banks, accredited investors, and secondary markets are let in on the deal to drive the valuation higher. The first two groups pray for and/or plan an IPO to dump an even higher valuation on the public market. Boom is the transfer of wealth from the bottom 95% to the top 5%. Bust is when that transfer is complete.
- sammcd 16y ago
  Most all of the special vehicles and secondary markets I have heard of require you to be an accredited investor to participate. You have to be somewhat wealthy to be an accredited investor ($200,000/year income or $300,000 if married) I've heard these arguments a lot, but I've never seen anyone point to a specific case where someone with under a $50,000 a year income ends up with these stocks. Other than employees of course.
  - gatsby 16y ago
    Correct, most secondary markets only allow accredited investors. My point above is not that secondary markets are allowing the general public to buy shares, but rather, that secondary markets are a path to an IPO - i.e. if you were an accredited Goldman investor who bought in at a $50b valuation, you're likely hoping for a FB public offering to drive the valuation up to $75-100b so that you can dump your shares and double your investment.
roc 16y ago
The Goldman Sachs/Facebook deal makes that distinction a bit murky. I hadn't heard whether or not they allowed investors into their deal that weren't playing with their own private equity. It's quite possible the reality isn't so open-and-shut. And if we hear about more of these 'special purpose vehicles', the public/private distinction may well be on its is way to irrelevancy.
- sabat 16y ago
  It's still small potatoes, though. This level of investing does not compare to the levels seen in 2000. That's what makes this post just another Chicken Little.
  - roc 16y ago
    If that 'special purpose vehicle' move flies, it won't be small potatoes for long at all. Further, the article is a very well-thought and argued piece that doesn't remotely veer into hyperbole. Even if you disagree with its conclusions, it strikes me as incredibly disingenuous to dismiss it as "just another Chicken Little".
    - sabat 16y ago
      I see it as just another well-thought and argued Chicken Little. Unsubstantiated speculation != a bubble.
sedachv 16y ago
One scenario I've heard is that Sarbanes-Oxley might be partially repealed to make it easier for these sort of companies to go public. I'm not sure whether it's the S-O that's actually keeping companies from going public now. An alternative scenario is the rise of a hypothetical trend in listing on non-US exchanges.

by hop 16y ago

eladgil 16y ago

Totally agree. I address this in the section "Ways this inflationary period (if it exists) is different from 1997-2000". I am sure I missed a bunch of other ways it is different. I think this inflationary period is probably closer to past ones (e.g. microcomputer/peripherals in the early 80s) then the wide spread financial asset bubble of 2000.

Straubiz 16y ago
Very thoughtful piece, thanks a lot for sharing this. It seems so far that M&A valuations are following up serie A valuations (see Google & Path for instance). The bubble, if it exists, is no longer limited to the seed ecosystem.
- eladgil 16y ago
  Yeah, I think that is indeed the case - it is moving into series A territory. Big question is if it will go upstream to series B/C/D where the big $s are ... :)

gatsby 16y ago

Very important distinction, but I think we're already seeing these lofty valuations being passed to individual investors (via "special vehicles," secondary markets, limited partners, etc.) Most bubbles trickle down. VCs will gladly partner with companies at high valuations because eventually banks, accredited investors, and secondary markets are let in on the deal to drive the valuation higher. The first two groups pray for and/or plan an IPO to dump an even higher valuation on the public market. Boom is the transfer of wealth from the bottom 95% to the top 5%. Bust is when that transfer is complete.

sammcd 16y ago
Most all of the special vehicles and secondary markets I have heard of require you to be an accredited investor to participate. You have to be somewhat wealthy to be an accredited investor ($200,000/year income or $300,000 if married) I've heard these arguments a lot, but I've never seen anyone point to a specific case where someone with under a $50,000 a year income ends up with these stocks. Other than employees of course.
- gatsby 16y ago
  Correct, most secondary markets only allow accredited investors. My point above is not that secondary markets are allowing the general public to buy shares, but rather, that secondary markets are a path to an IPO - i.e. if you were an accredited Goldman investor who bought in at a $50b valuation, you're likely hoping for a FB public offering to drive the valuation up to $75-100b so that you can dump your shares and double your investment.

roc 16y ago

The Goldman Sachs/Facebook deal makes that distinction a bit murky. I hadn't heard whether or not they allowed investors into their deal that weren't playing with their own private equity. It's quite possible the reality isn't so open-and-shut. And if we hear about more of these 'special purpose vehicles', the public/private distinction may well be on its is way to irrelevancy.

sabat 16y ago
It's still small potatoes, though. This level of investing does not compare to the levels seen in 2000. That's what makes this post just another Chicken Little.
- roc 16y ago
  If that 'special purpose vehicle' move flies, it won't be small potatoes for long at all. Further, the article is a very well-thought and argued piece that doesn't remotely veer into hyperbole. Even if you disagree with its conclusions, it strikes me as incredibly disingenuous to dismiss it as "just another Chicken Little".
  - sabat 16y ago
    I see it as just another well-thought and argued Chicken Little. Unsubstantiated speculation != a bubble.

sedachv 16y ago

One scenario I've heard is that Sarbanes-Oxley might be partially repealed to make it easier for these sort of companies to go public. I'm not sure whether it's the S-O that's actually keeping companies from going public now. An alternative scenario is the rise of a hypothetical trend in listing on non-US exchanges.