4 ms·

I think the real issue is that there's people with lots of money that are willing to fund a lot of different companies in the hope of stumbling across the next

by leoedin 13y ago

I think the real issue is that there's people with lots of money that are willing to fund a lot of different companies in the hope of stumbling across the next facebook. Result? A whole host of well funded but ultimately useless apps and websites. Meanwhile, the people who can make these websites are making lots of money. It's probably a bubble to some extent. Eventually, if the return from all these web apps is less than the money spent on them, the money will dry up. (I'd imagine that this will be the case - most of the value of the most-recent crop of high-value tech startups seems to be based on hype and even bigger companies buying them, rather than profitability or revenues). In the mean time, there's still people queuing up to fund things they don't understand. The biggest thing to remember about bubbles is that they always seem to keep growing far longer than any sensible person would expect. Will the money run out eventually? Probably.

jacques_chester 13y ago
People with lots of money have been disappointed by the performance of traditional investment vehicles for the past 5 years; meanwhile a lot of extra money has been put into the financial sector. If you're a fund with $100 billion under management, dropping $2 billion into various venture funds is a reasonable part of the mix. Multiply that by the fact that several hundred funds, banks, trusts and companies collectively control trillions of dollars and these little 1 or 2 percent investments pump billions of dollars into tens of thousands of companies with collectively perhaps a few hundred thousand employees. When every buyer is cashed up, prices for sellers rise.
- iaskwhy 13y ago
  (I don't know much about this but) I kind of believe it is a good thing that the traditional investment vehicles are not that good anymore. That was like betting on the outcome of the players of the roulette, right? Money against money against something that may make money. This last bit, investing in something that might make money, brings the world new ideas. It's probably a completely incorrect picture I'm drawing here though.
erikj54 13y ago
Bang on. Does this not remind you of Levis jeans during the gold rush. Few miners really did well, but the companies that supplied the miners all did well. http://davidrbradley.hubpages.com/hub/Levi-Strauss-American-Success-Story http://davidrbradley.hubpages.com/hub/Levi-Strauss-American-...
rythie 13y ago
Not sure I understand why we shouldn't have another facebook - sure it's not disruptive anymore - but facebook needs competition and social it is a massive market. I don't hear anyone saying - don't bother making a smartphone unless you are Apple or Samsung (of course this might have been Motorola or Nokia in the past :-) )
elliottcarlson 13y ago
Investments almost work on a loss leader model - while there is still decisions made on who to invest in (some VC firms/investors/angels making wiser decisions than others), they are still banking on the small percentage of those investments actually making a return on investment. This return covers the failed investments that they might eventually write off. The general rule is 1/3rd of investments will fail, 1/3rd of investments will under perform and 1/3rd will meet expectations - and to put that in to a better perspective, "expectations" should be read as a 5x to 10x return on investment. A better firm might be able to skew that more to the successful side, while another firm might be more on the failure side. I don't think the money will "run out" - but the better firms (think USV, Sequoia, Accel, etc) will continue having the experience in finding successful startups and the smaller firms might just not see the return on interest and exit the game.
- leoedin 13y ago
  The money will definitely slow down if the return from the industry as a whole (the industry being SaaS and web apps) is less than the investment levels put in. It's worth remembering that while the initial investors in Facebook have seen amazing returns which will subsidise other investments for decades to come, those returns are only because the hype in the industry as a whole has lead other people to buy into facebook. Facebook itself has fairly low revenues and they're struggling to grow them. Equally while anyone who'd invested in instagram would have walked away with a nice sum, the money to fund that acquisition came from the same Facebook investment. There's a lot of hype about "tech" (in this context really only web apps) which has lead to a lot of money pouring in from people desperate to grab a slice of the pie. The reality is that while web apps and SaaS is a large industry, the size of the investment funds targeting the industry is due to hype and investors saying "me too" rather than a reflection on the available revenues. You have to look at even the success stories in this context. The money won't run out completely, but if the money from investors late to the party slows down then the value of the successful web apps will fall to levels which reflect their revenues.

by leoedin 13y ago

jacques_chester 13y ago

People with lots of money have been disappointed by the performance of traditional investment vehicles for the past 5 years; meanwhile a lot of extra money has been put into the financial sector. If you're a fund with $100 billion under management, dropping $2 billion into various venture funds is a reasonable part of the mix. Multiply that by the fact that several hundred funds, banks, trusts and companies collectively control trillions of dollars and these little 1 or 2 percent investments pump billions of dollars into tens of thousands of companies with collectively perhaps a few hundred thousand employees. When every buyer is cashed up, prices for sellers rise.

iaskwhy 13y ago
(I don't know much about this but) I kind of believe it is a good thing that the traditional investment vehicles are not that good anymore. That was like betting on the outcome of the players of the roulette, right? Money against money against something that may make money. This last bit, investing in something that might make money, brings the world new ideas. It's probably a completely incorrect picture I'm drawing here though.

erikj54 13y ago

Bang on. Does this not remind you of Levis jeans during the gold rush. Few miners really did well, but the companies that supplied the miners all did well. http://davidrbradley.hubpages.com/hub/Levi-Strauss-American-Success-Story http://davidrbradley.hubpages.com/hub/Levi-Strauss-American-...

rythie 13y ago

Not sure I understand why we shouldn't have another facebook - sure it's not disruptive anymore - but facebook needs competition and social it is a massive market. I don't hear anyone saying - don't bother making a smartphone unless you are Apple or Samsung (of course this might have been Motorola or Nokia in the past :-) )

elliottcarlson 13y ago

Investments almost work on a loss leader model - while there is still decisions made on who to invest in (some VC firms/investors/angels making wiser decisions than others), they are still banking on the small percentage of those investments actually making a return on investment. This return covers the failed investments that they might eventually write off. The general rule is 1/3rd of investments will fail, 1/3rd of investments will under perform and 1/3rd will meet expectations - and to put that in to a better perspective, "expectations" should be read as a 5x to 10x return on investment. A better firm might be able to skew that more to the successful side, while another firm might be more on the failure side. I don't think the money will "run out" - but the better firms (think USV, Sequoia, Accel, etc) will continue having the experience in finding successful startups and the smaller firms might just not see the return on interest and exit the game.

leoedin 13y ago
The money will definitely slow down if the return from the industry as a whole (the industry being SaaS and web apps) is less than the investment levels put in. It's worth remembering that while the initial investors in Facebook have seen amazing returns which will subsidise other investments for decades to come, those returns are only because the hype in the industry as a whole has lead other people to buy into facebook. Facebook itself has fairly low revenues and they're struggling to grow them. Equally while anyone who'd invested in instagram would have walked away with a nice sum, the money to fund that acquisition came from the same Facebook investment. There's a lot of hype about "tech" (in this context really only web apps) which has lead to a lot of money pouring in from people desperate to grab a slice of the pie. The reality is that while web apps and SaaS is a large industry, the size of the investment funds targeting the industry is due to hype and investors saying "me too" rather than a reflection on the available revenues. You have to look at even the success stories in this context. The money won't run out completely, but if the money from investors late to the party slows down then the value of the successful web apps will fall to levels which reflect their revenues.