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Michael's main points are that 1.) Less money invested now than 2001. 2.) Low burnrate. Therefore it's not a bubble. 1.) Sure, there is less money invested

Michael's main points are that 1.) Less money invested now than 2001. 2.) Low burnrate. Therefore it's not a bubble. 1.) Sure, there is less money invested now. However, the market cap (and possible return for the investors) is also smaller. Remember that at the height of dot com in 1999, nasdaq had a market cap of 6.6 trillion. The bubble crash wiped out $5 trillion in the market value of the technology companies. The current market cap for nasdaq is $3.1 trillion, and if adjusted for inflation, is 2.3 trillion. (using government inflation data. if you were to use realistic inflation data, it would probably be way less than that) So we have less money invested, sure. But it's because there is less return possible. 2.) Low burnrate has nothing to do with overvaluation of companies. If a company's potential exit is realistically X, and investors miscalculated and invested an amount that valuates the company at 5X, and the ceo choose to burn that investment over 16 months instead of 5, the investor is still gonna lose the 4X over time. And because the US economy is alot worse than 2001, (check government debt level, unemployment rate, labor participation rate, average personal savings rate, average retirement savings size, food/gas inflation) when the hangover comes, the tech industry is gonna have a massive headache. Lots of layoffs, startups shuttering, investors losing 90% of their investment, etc. So the question you have to ask, and only ask is, will the company ever realistically achieve that valuation, regardless of burnrate, regardless of past performance, in the current and future macroeconomic conditions. For companies like Facebook at $70 billion, Twitter at $11 billion, Groupon at $6 billion, etc.

Goladus 16y ago
2.) Low burnrate. Not quite, he's talking about a particular mentality in that the goal was to blow as much money as possible and get enough revenue to IPO, at which point early investors cash out, profiting off public investment in something worthless. 2.) Low burnrate has nothing to do with overvaluation of companies. But overvaluation of individual companies does not mean there is a bubble, either. It just means a company is overvalued. In the case of startups, "a Bull Market for private investors" is a lot more accurate than "Bubble" but a lot less sensational and scary because bulls don't pop they just turn into bears. So the question you have to ask, and only ask is, will the company ever realistically achieve that valuation, regardless of burnrate, regardless of past performance, in the current and future macroeconomic conditions. As an individual investor, yes. But generally speaking the reason it's worth asking whether there is a bubble (and not just whether a particular company is overvalued) is because oversight and regulation can be effective at preventing the sort of stock market abuse that led to the two recent crashes. Overvaluation in general, though, is simply one of the risks of investment.

Goladus 16y ago

2.) Low burnrate. Not quite, he's talking about a particular mentality in that the goal was to blow as much money as possible and get enough revenue to IPO, at which point early investors cash out, profiting off public investment in something worthless. 2.) Low burnrate has nothing to do with overvaluation of companies. But overvaluation of individual companies does not mean there is a bubble, either. It just means a company is overvalued. In the case of startups, "a Bull Market for private investors" is a lot more accurate than "Bubble" but a lot less sensational and scary because bulls don't pop they just turn into bears. So the question you have to ask, and only ask is, will the company ever realistically achieve that valuation, regardless of burnrate, regardless of past performance, in the current and future macroeconomic conditions. As an individual investor, yes. But generally speaking the reason it's worth asking whether there is a bubble (and not just whether a particular company is overvalued) is because oversight and regulation can be effective at preventing the sort of stock market abuse that led to the two recent crashes. Overvaluation in general, though, is simply one of the risks of investment.