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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

by 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.
MrMan 14y ago
here's a scenario for you - end of 2012, and for some reason ad spending is down and consumer spending has not increased as much as was forecast. the major platforms that capture that ad money suffer hits to their stock. FaceBook will be public by then, and if they suffer a decline in profits, much less a decline in revenue, this early in their history, the luster will come right off, taking them from $100 to $30 in a few days. the reverse halo effect of FB will cause optimism about the resale value of shiny startups to decrease. by this time next year, PG is blogging about "sanity and wisdom" and how he has seen it all before.
- dhimes 14y ago
  So you are saying that the bubble can burst if, when it comes time for the shiny new things to be working businesses, they fail. I completely agree.
hemancuso 14y ago
I think it's important to recognize that the Public can't easily invest into startups. It really is just a small group of investors who are in this market right now. This is an important difference between today and the late 90s.
- corford 14y ago
  True but a lot of VC money comes from public pension pots etc. So there is some scope for innocent people to be indirectly damaged by a bust.
  - hemancuso 14y ago
    Less than $50B USD per year. Peanuts, compared to the nearly $20T USD in retirement assets in the US.
F_J_H 14y ago
Resource plays - particularly natural gas?
debacle 14y ago
We will see the bubble deflate a bit when FB doesn't hit its target valuation, and it will either pop at that point or it will pop when one of: * LinkedIn busts * Zynga busts * Google sees a dip Happen.

by benwerd 14y ago

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.

MrMan 14y ago

here's a scenario for you - end of 2012, and for some reason ad spending is down and consumer spending has not increased as much as was forecast. the major platforms that capture that ad money suffer hits to their stock. FaceBook will be public by then, and if they suffer a decline in profits, much less a decline in revenue, this early in their history, the luster will come right off, taking them from $100 to $30 in a few days. the reverse halo effect of FB will cause optimism about the resale value of shiny startups to decrease. by this time next year, PG is blogging about "sanity and wisdom" and how he has seen it all before.

dhimes 14y ago
So you are saying that the bubble can burst if, when it comes time for the shiny new things to be working businesses, they fail. I completely agree.

hemancuso 14y ago

I think it's important to recognize that the Public can't easily invest into startups. It really is just a small group of investors who are in this market right now. This is an important difference between today and the late 90s.

corford 14y ago
True but a lot of VC money comes from public pension pots etc. So there is some scope for innocent people to be indirectly damaged by a bust.
- hemancuso 14y ago
  Less than $50B USD per year. Peanuts, compared to the nearly $20T USD in retirement assets in the US.

F_J_H 14y ago

Resource plays - particularly natural gas?

debacle 14y ago

We will see the bubble deflate a bit when FB doesn't hit its target valuation, and it will either pop at that point or it will pop when one of: * LinkedIn busts * Zynga busts * Google sees a dip Happen.