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Maybe it's not a bubble per se, maybe it's just overinvestment? The world economy really sucks right now, and people are seeking havens for their cash. The tech

by neilk 14y ago

Maybe it's not a bubble per se, maybe it's just overinvestment? The world economy really sucks right now, and people are seeking havens for their cash. The tech industry is one of the few bright spots in the world economy, and there's an evergreen hope of some runaway hit. So it could be possible for there to be overinvestment even in the face of widespread skepticism. We also have a lot of supercool mobile electronics platforms being made by China now, and the companies and workers over there are just not getting a fair share of the value they are creating. Just look at Apple's balance sheet. Labor costs are rising, but given how things work in China...? So maybe it's the Chinese Oppression Bubble.

rpeden 14y ago
Overinvestment in hope of exceptional returns is what a financial bubble is. Excess liquidity in the economy is one of the things that can lead to a bubble, as people look for places to put the money to use. If this is the case now, we should be seeing the same thing in other business sectors that promise the potential of well above average returns.
achompas 14y ago
I agree wholeheartedly and would point people towards Chris Dixon's article on the topic.[0] Specifically, I think we're witnessing early-stage overinvestment. This has been anecdotally validated by Dixon and Fred Wilson, who state that companies are struggling to follow up blowout seed rounds. "Anecdotes" and all that, but this fits with Neil's idea above (not the one on a Chinese Oppression Bubble, though :P). [0] http://cdixon.org/2012/04/29/is-it-a-tech-bubble/ http://cdixon.org/2012/04/29/is-it-a-tech-bubble/
heelhook 14y ago
Too many people are throwing around the "people are just seeking a place to park their cash because the economy sucks" misguided idea. Startups offer investors exactly the opposite of what a capital preservation strategy seeks: high risk with low possibility of considerable returns. Even if the world economy were in recession (its not [1]) most asset managers would recommend dozens of other asset classes before recommending investing in a startup for capital preservation, specially when inflation is low as is the case in most of the world at the moment [2]. [1] http://en.wikipedia.org/wiki/Global_recession http://en.wikipedia.org/wiki/Global_recession http://www.economy.com/dismal/map/default.asp http://www.economy.com/dismal/map/default.asp [2] http://www.indexmundi.com/world/inflation_rate_(consumer_prices).html http://www.indexmundi.com/world/inflation_rate_(consumer_pri...
- Androsynth 14y ago
  Investment in a single startup is very risky, but if you were supplying the capital for a venture capital firm, I would imagine the investment would be much more consistent. I haven't done any real research, but I strongly suspect that a lot of VC firms are making good returns across their portfolios.
  - heelhook 14y ago
    Yes, portfolio diversification is investing 101 (kinda curious how most of us here, when working on a new startup, will invest close to 100% of our awake time for months with no diversification) Your post is somewhat related to what I said. The point I was making was that saying that startups are getting funded because there are no better assets for capital preservation are misguided. You are talking about "making good returns across their portfolios", that's not the goal of capital preservation, that's the goal of capital appreciation.

by neilk 14y ago

rpeden 14y ago

Overinvestment in hope of exceptional returns is what a financial bubble is. Excess liquidity in the economy is one of the things that can lead to a bubble, as people look for places to put the money to use. If this is the case now, we should be seeing the same thing in other business sectors that promise the potential of well above average returns.

achompas 14y ago

I agree wholeheartedly and would point people towards Chris Dixon's article on the topic.[0] Specifically, I think we're witnessing early-stage overinvestment. This has been anecdotally validated by Dixon and Fred Wilson, who state that companies are struggling to follow up blowout seed rounds. "Anecdotes" and all that, but this fits with Neil's idea above (not the one on a Chinese Oppression Bubble, though :P). [0] http://cdixon.org/2012/04/29/is-it-a-tech-bubble/ http://cdixon.org/2012/04/29/is-it-a-tech-bubble/

heelhook 14y ago

Too many people are throwing around the "people are just seeking a place to park their cash because the economy sucks" misguided idea. Startups offer investors exactly the opposite of what a capital preservation strategy seeks: high risk with low possibility of considerable returns. Even if the world economy were in recession (its not [1]) most asset managers would recommend dozens of other asset classes before recommending investing in a startup for capital preservation, specially when inflation is low as is the case in most of the world at the moment [2]. [1] http://en.wikipedia.org/wiki/Global_recession http://en.wikipedia.org/wiki/Global_recession http://www.economy.com/dismal/map/default.asp http://www.economy.com/dismal/map/default.asp [2] http://www.indexmundi.com/world/inflation_rate_(consumer_prices).html http://www.indexmundi.com/world/inflation_rate_(consumer_pri...

Androsynth 14y ago
Investment in a single startup is very risky, but if you were supplying the capital for a venture capital firm, I would imagine the investment would be much more consistent. I haven't done any real research, but I strongly suspect that a lot of VC firms are making good returns across their portfolios.
- heelhook 14y ago
  Yes, portfolio diversification is investing 101 (kinda curious how most of us here, when working on a new startup, will invest close to 100% of our awake time for months with no diversification) Your post is somewhat related to what I said. The point I was making was that saying that startups are getting funded because there are no better assets for capital preservation are misguided. You are talking about "making good returns across their portfolios", that's not the goal of capital preservation, that's the goal of capital appreciation.