7 ms·

Unfortunately I'm starting to agree with the bubble 2.0. Last year I didn't believe it that much, but this year I'm starting to see crazy company evaluations,

Unfortunately I'm starting to agree with the bubble 2.0. Last year I didn't believe it that much, but this year I'm starting to see crazy company evaluations, highly inflated that don't generate any revenue at all, so I don't know how can they be worth billions of dollars, but I know math and little about economics. But if bursts, it's a good thing. It brings perspective, a thing that's missing a lot these days, where every social app or thingy that's the hottie of the week is evaluated on > $400M.

twiceaday 14y ago
Seems to me like each of these overblown evaluations is a bubble onto itself. Perhaps there is a general trend but such a thing cant lead to a crash. What would a crash involve?
- nextparadigms 14y ago
  Investors realizing that they can't make their money back. Right now even if they pay $10 billion for a photo app, they're still expecting other investors will buy their shares at a $20 billion valuation or more later on. All investments are made on speculation right now, rather than based on true value and potential for making money. But if that doesn't come true, and everyone realizes this, then there will be a crash. Valuations will fall, and the initial investors won't be able to make their money back because those photo apps weren't making any revenue, let alone profits.
  - marcusf 14y ago
    That doesn't seem like a crash though; I'd wager the investor class and the general populace are quite disjoint sets, e.g. there's not a mass of pension funds involved in IT venture capital. What we might see is a "return to senses" and a shortfall of capital for a while, but not a crash.
    - 46Bit 14y ago
      I've been expecting that for a while. Too many startups have crazy valuations, but too many seem to make good money for me to think all the investment will dry up for 5 years or anything like it.
    - brazzy 14y ago
      AFAIK, quite a lot of the money that VCs are so desperately trying to invest DOES come from Pension funds.
- jnorthrop 14y ago
  What happens in a crash is a rapid collapse of a single market (say the social segment of online businesses) then then the markets supported by that market follow suit until the momentum threatens the economy as a whole. Financial markets can react fast to this causing a "crash."
toemetoch 14y ago
We're 12 years past the .com bubble. A large portion of the people who're creating and moving money today are in their twenties, they didn't experience 1999 in an economic point of view so there are no signals for them. Having said that, let's not forget that a lot of the uncharted terrain from 1999 is now thoroughly explored with a microscope. If you're talking about a bubble, don't forget to mention which subset of the internet you're referring to. Yes, social thingies are the new buzz but they are such a small part of the online ecosystem. A lot of the social stuff was created as an add-on to existing stuff - take it out of the equation and very little value is lost.
- hkarthik 14y ago
  The financiers are, in general, folks that lived through the dotcom bust. That's the perplexing part right now. You'd think they would know better.
  - toemetoch 14y ago
    True, I didn't consider that.
benwerd 14y ago
So let's be clear about this: these kinds of startups are arbitrary containers for investment dollars. They could be corn, or property, or jelly futures. But as it happens, technology companies are where a lot of people are putting their money right now. As a result, it's not the startups with the secure bottom line that are getting investment: it's shiny startups that happen to be very popular. Because those are the ones that look great in an investment portfolio, and which could potentially be sold elsewhere. It's not about dividends over time; it's about passing on a shiny valuable to someone else for a cash return. Given that premise, it seems like two things need to happen for the bubble to burst: - The odds of an investment going bad must increase (or the perceived odds) / the perceived value of shiny startups in general must decrease - Another arbitrary, shiny container for investment must arise Thanks to the banking crisis, we know that property and related investments are going to be tainted for a little while. What else out there could threaten the startup market today? How about in five years?
- tomgallard 14y ago
  From what I understand, bubbles bursting in the past (e.g. Tulips, Dotcom) have been triggered by a specific event rather than a new, more exciting outlet for money. In the Tulip bubble it was a failed auction in Haarlan, in the DotCom bubble it was the Fed raising interest rates, paired with the judgement in the US vs Microsoft trial. So, its interesting to hypothesize what the 'trigger' event could be in this case. I doubt it will be the Facebook float, as I think we have a while to run yet.
  - benwerd 14y ago
    Right - I think my first bullet is probably triggered by an event. Facebook could be it, but I think you're right: it'll probably be something further down the line. Wouldn't surprise me at all if it turned out to be SOPA-like legislation coupled with a ruling on sales tax.
  - _delirium 14y ago
    It's hard to predict these things, but if I had to guess a trigger, it would be some kind of major negative news about internet advertising that causes at least a temporary stampede of advertising spend out of the sector (which could in turn trigger an even bigger investor reaction/overreaction). Not sure what precise form that'd take. Anything from a major click-fraud-type scandal (would have to turn out to be significantly worse than the current assumptions about fraud, though) to a damning report about ROI from one of the more credible white-paper-issuing analysts, or one of the players themselves.

twiceaday 14y ago

Seems to me like each of these overblown evaluations is a bubble onto itself. Perhaps there is a general trend but such a thing cant lead to a crash. What would a crash involve?

nextparadigms 14y ago
Investors realizing that they can't make their money back. Right now even if they pay $10 billion for a photo app, they're still expecting other investors will buy their shares at a $20 billion valuation or more later on. All investments are made on speculation right now, rather than based on true value and potential for making money. But if that doesn't come true, and everyone realizes this, then there will be a crash. Valuations will fall, and the initial investors won't be able to make their money back because those photo apps weren't making any revenue, let alone profits.
- marcusf 14y ago
  That doesn't seem like a crash though; I'd wager the investor class and the general populace are quite disjoint sets, e.g. there's not a mass of pension funds involved in IT venture capital. What we might see is a "return to senses" and a shortfall of capital for a while, but not a crash.
  - 46Bit 14y ago
    I've been expecting that for a while. Too many startups have crazy valuations, but too many seem to make good money for me to think all the investment will dry up for 5 years or anything like it.
  - brazzy 14y ago
    AFAIK, quite a lot of the money that VCs are so desperately trying to invest DOES come from Pension funds.
jnorthrop 14y ago
What happens in a crash is a rapid collapse of a single market (say the social segment of online businesses) then then the markets supported by that market follow suit until the momentum threatens the economy as a whole. Financial markets can react fast to this causing a "crash."

toemetoch 14y ago

We're 12 years past the .com bubble. A large portion of the people who're creating and moving money today are in their twenties, they didn't experience 1999 in an economic point of view so there are no signals for them. Having said that, let's not forget that a lot of the uncharted terrain from 1999 is now thoroughly explored with a microscope. If you're talking about a bubble, don't forget to mention which subset of the internet you're referring to. Yes, social thingies are the new buzz but they are such a small part of the online ecosystem. A lot of the social stuff was created as an add-on to existing stuff - take it out of the equation and very little value is lost.

hkarthik 14y ago
The financiers are, in general, folks that lived through the dotcom bust. That's the perplexing part right now. You'd think they would know better.
- toemetoch 14y ago
  True, I didn't consider that.

benwerd 14y ago

So let's be clear about this: these kinds of startups are arbitrary containers for investment dollars. They could be corn, or property, or jelly futures. But as it happens, technology companies are where a lot of people are putting their money right now. As a result, it's not the startups with the secure bottom line that are getting investment: it's shiny startups that happen to be very popular. Because those are the ones that look great in an investment portfolio, and which could potentially be sold elsewhere. It's not about dividends over time; it's about passing on a shiny valuable to someone else for a cash return. Given that premise, it seems like two things need to happen for the bubble to burst: - The odds of an investment going bad must increase (or the perceived odds) / the perceived value of shiny startups in general must decrease - Another arbitrary, shiny container for investment must arise Thanks to the banking crisis, we know that property and related investments are going to be tainted for a little while. What else out there could threaten the startup market today? How about in five years?

tomgallard 14y ago
From what I understand, bubbles bursting in the past (e.g. Tulips, Dotcom) have been triggered by a specific event rather than a new, more exciting outlet for money. In the Tulip bubble it was a failed auction in Haarlan, in the DotCom bubble it was the Fed raising interest rates, paired with the judgement in the US vs Microsoft trial. So, its interesting to hypothesize what the 'trigger' event could be in this case. I doubt it will be the Facebook float, as I think we have a while to run yet.
- benwerd 14y ago
  Right - I think my first bullet is probably triggered by an event. Facebook could be it, but I think you're right: it'll probably be something further down the line. Wouldn't surprise me at all if it turned out to be SOPA-like legislation coupled with a ruling on sales tax.
- _delirium 14y ago
  It's hard to predict these things, but if I had to guess a trigger, it would be some kind of major negative news about internet advertising that causes at least a temporary stampede of advertising spend out of the sector (which could in turn trigger an even bigger investor reaction/overreaction). Not sure what precise form that'd take. Anything from a major click-fraud-type scandal (would have to turn out to be significantly worse than the current assumptions about fraud, though) to a damning report about ROI from one of the more credible white-paper-issuing analysts, or one of the players themselves.