9 ms·

What to do if a bubble is starting

172 points by fjw 13y ago

pnachbaur 13y ago
Sounds like solid advice to companies - what about advice for young engineers?
- TylerE 13y ago
  Sell shovels.
- a-priori 13y ago
  As an employee you have fairly little to lose if you play your cards right. That's the benefit of the employer-employee relationship and being compensated primarily in wages. So my advice is to ride the bubble because the inflated salaries and other compensation are good for you, but be mindful of what might happen if the bubble pops. If it's bad enough, you might be left unemployed with very few job prospects for a period of time. Don't inflate your lifestyle, and use the opportunity to build up a large savings account. If the bubble pops, that'll tide you over for a long period of unemployment until the job market recovers or give you breathing room where you can pivot your career. If all this talk about bubbles turns out to be just fear-mongering and it doesn't pop in the end, it's still money in your pocket you can use to bootstrap your own company or eventually retire on. The worst things to do are to spend all the money you have, or invest it in bubbled assets that might evaporate.
  - quaffapint 13y ago
    It must be in the valley that there is 'inflated salaries'. Around mid-atlantic salaries never recovered from the economic downturn, and they show no sign of ever doing so.
    - a-priori 13y ago
      I'm giving advice for a scenario where salaries are inflated due to a bubble. For the record, I'm not in the valley either.
- ChuckMcM 13y ago
  If you are a young/new engineer in a bubble you should recognize that excess salary is a function of the bubble, not your actual value. To that end bank as much excess salary as you can, (keep your personal burn rate low) and don't set your internal 'value meter' by a company that so desperately needed engineers they over paid for them. I saw several engineers in the dot-com crush, graduate, work for a year at some BigCorp, then go to work for a startup as "Chief Architect" or some other vaulted title, lose their job when the crash hit, and then found themselves unemployable at some really vaulted title and salary because they really only had 3 - 4 years experience and it wasn't all that broad. That was sad to watch. Don't be that engineer if this is another bubble.
  - pnathan 13y ago
    FYI, I've been seeing a variety of title inflation - lots of "Senior" styled people without the 7-12 years of industry experience to back it up. This seems particularly prevalent in the startup sector. In my experience, YMMV, etc, etc. Just something I noticed in my looking for work 1H2013.
    - hackula1 13y ago
      Titles are the cheapest benefit an employer can provide.
- nilkn 13y ago
  There's an easy heuristic here. Look at a segment of the industry which is unambiguously not in a bubble and ask yourself whether you could get hired there doing similar work with a similar salary. There's one hitch here: if the entire startup scene were to bust, there'd be a massive excess of developers vying for the traditional stable jobs at traditional profitable companies. This would significantly raise the bar for getting hired while potentially lowering salaries.
- ekidd 13y ago
  I was successfully freelancing and doing quite well in 1999 and 2000, and it was pretty interesting watching the wheels all come off in 2001. Here's a very subjective idea of what it felt like to me: - The bubble "burst" over about 9 months in the greater Boston area, give or take. - For about 3 months, it was nearly impossible to get hired no matter how good you were. Everyone was laying off solid senior engineers with tons of in-house knowledge, so why would they hire? - The area immediately around Boston recovered slowly, because there were just too many unemployed engineers. - My ~23yo friend who held $250,000 of stock watched it drop to almost nothing during his post-IPO handcuff period. - Any company which sold to startups, or which sold to companies which sold to startups, etc., pretty much died horribly. Huge, successful, awesome companies just evaporated. I was young and single, so I simply skipped out of the "blast zone" around Boston, waited a few months, and started applying to cool, small shops in second or third-tier cities that didn't have a huge number of unemployed programmers. Got a good job, had fun, got a bunch of raises, etc. The financial advice in the other comments is good. Make sure you have a year's cushion if you can. If you're good, you love programming, and you can relocate, you can ride out a lot. Plenty of interesting small companies are unable to hire in this market, and most will be around post-crash. Take a salary cut, get an interesting job, and help somebody make some money.
- jarofgreen 13y ago
  Basically, if it is a bubble then you can expect that your salary will go down or you will suffer a period of unemployment or both. Don't take on extra debt now (like buying an extra fancy house on a giant mortgage) that will trap you later.
danielpal 13y ago
A bubble occurs when prices are driven by view on the future that are implausible or inconsistent. It seems that current high prices are mostly driven by "investment" competition - meaning that startups can raise prices at early stage because there are too many investors. This doesn't seem to be happening at later stages (B rounds) or public companies. What this means is that returns for initial investors is going to be lower - but it still might be sustainable. Companies usually will grow past +$15M when they do well.
the_watcher 13y ago
Very interesting to read his advice to be wary of hiring the day after his post on the importance of hiring. These two posts aren't contradictory at all, but those who read his piece yesterday and responded well to it should definitely read this as well.
- dasil003 13y ago
  I thought his hiring post was incredibly useful despite a couple disagreements I had. This one on the other hand seems much less useful. The fact is a bubble is only obviously in retrospect, and the forces that led to the dotcom bubble (completely unknown potential of "The Internet" combined with a deluge of dumb money due to easy IPOs and accompanying hype cycle) are no longer present, and thus any future bubble will look completely different and the conventional wisdom won't spot it coming.
  - the_watcher 13y ago
    I think I agree. I think this post works in complement to the hiring one (mainly the treat your cash like the last you'll raise and the warning that people are a huge expense).
wellboy 13y ago
I think it's a bubble in terms of the people, many big egos. In these times you should how to not have an no ego at all, if you don't have an ego, no one can leverage that to make you do things. The actual founder-founders, the inventors of the ideas however, are totally aware of that situation and let the startup people with the big egos do the CEO jobs while pulling the strings in the background. It's not a bubble in terms of the actual startups, because it's all based on users that actually use the apps a lot. The more usage an app has, the harder it is to kill. After the whole solomo, photo sharing hype, investors have become very cautious, so I don't actually believe money is cheap now. However, it's an ego bubble right now, startups get press before being ready, pursue vanity metrics that actually will kill the company, their own startups are growing over their heads. So it's maybe a people/ego bubble right now, which could turn into a full bubble, but time will show.
spindritf 13y ago
> And no one is talking about a bubble anymore Another great poster stopped reading HN.
- tptacek 13y ago
  There's a subtext you're missing.
  - spindritf 13y ago
    Well, it's hard to know what you don't know.
- benatkin 13y ago
  Oh please. It's an idiom.
kjackson2012 13y ago
If there is a bubble, it's most certainly not starting, it's ending. With the Fed tapering imminent, and interest rates starting to rise, there's no way that a bubble will be starting at this point. If anything, it will pop a bunch of near-bubbles, like Bay Area real estate, rent prices, stock market, etc.
- deleted 13y ago
  [deleted]
- limejuice 13y ago
  There is no Fed tapering imminent. They just voted last week to keep the $85 BLN/month flowing on a 9-1 vote. During dot.com bubble, the short term interest rate was 5%+ in 1998 and 1999, and that didn't stop that bubble. The Fed only belatedly raised rates to 6% in 2000 when the bubble went parabolic. The Fed is always slow to raise rates, and rates are at 0%. It could be years before we are at 2% rates with FOMC incrementing 0.25% every quarter or so, and 2% rates is still very stimulative. Right now, the Fed isn't even talking about raising interest rates. They have only been talking about reducing the $85 BLN/month $$ printing, but even that is on hold as of the last FOMC meeting where they voted 9 to 1 to not taper. The Fed still has the pedal to the metal, and have publicly stated they do not see a bubble anywhere (just like they said there was no housing bubble back in 2006-2007). Don't get shaken out of the market just because the Fed talks about tapering its $$ printing from $85BLN/month to $75BLN/month. The current environment is still very stimulative for stocks. If there is a bubble, it won't pop because of the Fed. It will pop after the momentum is exhausted and it collapses from its own weight.
- encoderer 13y ago
  According to Trulia's research, it will be cheaper to rent than buy in the Bay Area when interest rates hit 5.5%. For most of the rest of the country the rates would have to hit over 10% (!!!) for that to be true. So it should prove interesting what happens then. That said, my wife and I are in the middle of (trying) buying a house here. So far, there is intense competition amongst buyers. One home we put an offer on had 19 offers total. We offered 21.5% over asking and at least 3 offers came in ahead of us.
CodeCube 13y ago
Thinking back to about 2007, I remember the frothy fervor surrounding all of the new "web 2.0" companies that were coming on the scene back then. I thought for sure that the tech industry was about to see another apocalyptic event as the web 2.0 bubble popped. Thankfully, that bubble never popped (although another one did in '08). I think it's healthy for people to be paranoid of another bubble forming ... it helps potentially keep it at bay. At least, that's what I tell myself :P
- randomdata 13y ago
  I believe the "web 2.0" bubble did pop in 2008. However, we saw the rise of the "app economy" at the same time. Anyone failing in the web 2.0 sector could easily, and often transparently, pivot to the sudden demand for mobile applications. Whether that is a sign of the software industry maturing, or if it was just plain good luck, remains to be seen.
bfe 13y ago
A permanent, secular rise in the maturity of the tech startup ecosystem (and of "software eating everything") would exhibit many of the same signs of high growth, or the same collection of Verhulst growth curves in disparate indicators, as a bubble. Dev salaries, SoMa rents, and MBA hanger-on density are probably useless in distinguishing between the two.
- eli_gottlieb 13y ago
  In which case, we need some distinguishing factor, because you just argued for investing in a bubble ;-).
  - sillysaurus2 13y ago
    Investing in a bubble is a good thing, though. Without it we'd have no Paypal (and hence no Musk).
    - bfe 13y ago
      It's great for technology and society. It's not great for you when you invest your own or someone else's cash on the wrong side of the burst.
  - bfe 13y ago
    Sure. Growth in value, as measured in users plus at least one of profits or strategic value. I see Tesla, SpaceX, Twitter, and Github and I do not see a bubble. Instagram and Tumblr are good examples of growth in strategic value being enough.
    - eli_gottlieb 13y ago
      I don't actually see the separate and distinct economic value creation in Instagram, Twitter, or Tumblr, nor do I see the economic value capture in Github. But Tesla and SpaceX are just fucking awesome.
      - 13y ago
twakefield 13y ago
Bubbles are usually preceded by some regulatory or legislative change(s) that fuels them. This legislation usually has good intentions but falls victim of unintended consequences. For example, you can trace the housing bubble to the easing of lending standards through the modifications of the Community Reinvestment Act in the late 90s [1]. Legislation that creates new investments opportunities, coupled with cheap capital is a dangerous combination. I would not be surprised if the new JOBS Act [2] provides the spark and the Fed's loose monetary policy provides the fuel that creates a startup bubble (quickly). Companies like Angel List [3] and Wefunder [4] have been quick to recognize this and take advantage of the new demand pockets the JOBS Act creates. Just check out their home pages. As Sam mentions, there may be some time before it bursts, but it's very tough to figure out when it will be...and early stage company shares are not liquid. [1] http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act [2] http://en.wikipedia.org/wiki/JOBS_Act http://en.wikipedia.org/wiki/JOBS_Act [3] https://angel.co/ https://angel.co/ [4] https://wefunder.com/ https://wefunder.com/
- bfe 13y ago
  Blaming the CRA has been extensively debunked. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/no-marco-rubio-government-did-not-cause-the-housing-crisis/ http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/n... http://www.ritholtz.com/blog/2011/11/a-global-view-of-the-housing-bubble/ http://www.ritholtz.com/blog/2011/11/a-global-view-of-the-ho... http://www.cepr.net/index.php/blogs/beat-the-press/the-blame-the-community-reinvestment-act-industry http://www.cepr.net/index.php/blogs/beat-the-press/the-blame...
  - the_watcher 13y ago
    Those do not extensively debunk the CRA's influence. At best, they split hairs and show that CRA is not completely at fault and that we should blame Wall Street. I'm on board with blaming Wall Street for a lot of the problems (they went much further beyond rationally using the CRA's policies and instead went whole hog into "lend to everyone!"), but this strikes of "Sure, the legislation created perverse incentives and encouraged risky lending practices (which unsurprisingly spiraled much further out of control than the CRA intended into non-CRA covered loans), but the real problem is the people who acted on these perverse incentives!"
maerF0x0 13y ago
or feed it like wefunder.com will do .
thrush 13y ago
Would anyone mind elaborating on how the current bubble could compare to the DotCom bubble? I could see them being similar because they are both related to tech, but for some reason I don't feel too scared right now (the DotCom bubble popping was pretty bad, right?).
- enjo 13y ago
  The tech bubble of the late 90's was a fascinating phenomenon. It was global and widespread. My grandmother had significant money in tech stocks at the time. The overall amount of money we're talking about here is MUCH smaller than that. A couple of orders of magnitude at least. As such the effects of any bubble popping aren't going to have widespread consequences here. A major pullback in funding will definitely affect engineers. Jobs will simply be a bit harder to find, but there are so many technology companies operating outside of the startup funding domain that I don't think it will be terribly impactful. The worst case is we go back to like 2005, which isn't really too bad at all.
- omegant 13y ago
  There is a saying: if the grocery's attendant is telling you which stock to buy, better run and sale everything. In Spain I had big discussions with people about how expensive buying a home was (back in 2005), that it wasn't sustainable, and that prices will go down. People stared at me as If I were an idiot. Usually with all the atention and a good portion of the money is going in one direction, there is probably a bubble. I don't think there is one very big right now with startups, maybe a bit with mobile App(excess investments). But planets are aligning to allow a big one, now with the new law. We'll see..
devanti 13y ago
It would be more interesting if he could talk about how to take advantage of a bubble
- Afforess 13y ago
  That's easy. Keep plenty of liquidity, buy undervalued assets post-crash.
  - hackula1 13y ago
    Exactly. People seem to think that you make money by riding a bubble to the top, then jumping off when the timing is right at its peak. Turns out that is a great way to lose money (nobody jumps off fast enough). The real money is made cleaning up after a disaster.
  - logicallee 13y ago
    That's one strategy. Plenty of liquidity means (literally) that you're rich. So your strategy is 1) be rich 2) buy undervalued assets post-crash. Your strategy is okay. For those set of assumptions I suggest you remove the second step, which might significantly reduce your being rich. So, 1) Keep plenty of liquidty. Buy nothing pre- or post-crash. This has a very high probability of keeping you rich. Now on to us mere mortals. In bubble times did you know you can actually start a company with like a few hundred dollars, start delivering product and getting users, and get investment to accelerate the process? That way, you can build a company with cheap capital even if you're not already "plenty liquid", as you might put it.
- MarkTanamil 13y ago
  Short Facebook.
  - hamburglar 13y ago
    Shorting stocks during a bubble is a great way to learn about bounded upside and unbounded downside. I guess in some sense a valuable learning experience is "taking advantage."
aliston 13y ago
"... a significant uptick in the number of parties, hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job..." Is anyone else noticing this phenomenon? Apparently I'm not invited to the right parties...
- marchra 13y ago
  omg, u missed Pharrel?
- spectre256 13y ago
  Even if you aren't noticing it, you're not missing out. To reuse a great Mel Brooks line, the girls have an opening they're looking for you to fill, but it's not the interesting kind: at best a Sr Software Engineer at some massive company writing Java on a team that "is just like a small startup in a big company".
  - redblacktree 13y ago
    > is just like a small startup in a big company That's my favorite line. It lets me know to run the other way. Often, when people use that line on me, I ask about the equity I'll get as part of the deal. Usually, it turns out that they want founder-level enthusiasm without the pay.
    - vkou 13y ago
      My second job (For the software product arm a large investment bank) was actually advertised like that. The pay was great, and so were the hours & work environment. Mind you, when I got the job, I thought I caught a unicorn.
deleted 13y ago
[deleted]
- dataisfun 13y ago
  quick fix (you mean, not in a bubble :) Not trolling, promise :)
dataisfun 13y ago
Thanks Sam. I love your posts! I think the rise in startup valuations, even at the early stage, while a bit frothy (and definitely more so in the bay area) is driven by some structural changes (i.e., the leverage allowed by the new tools which make development cheaper/faster) and access to much bigger markets (mobile, anyone?). "Hot girls" at the bar looking for a job are probably doing so because tech is one of the few non-sucky sectors for young people. Founders investing their capital in other startups doesn't strike me as so weird, given how Angel List and Funders Club, etc. are making it ridiculously easy to put a bit of money to work. Founders with disposable income used to invest in public equities and bonds if they wanted to. Now, startups. There are trillions of dollars still sitting on the sidelines chasing growth. Not even a tiny fraction of that has been deployed to VC (mostly because the returns, in aggregate, are still pretty bad). Should that happen, I might begin to be a little apprehensive.
- enjo 13y ago
  I think "hot girl" phenomenon he is referring to is girls recruiting engineers. I've definitely noticed that happening among startups both in the bay area and elsewhere. I know of one trendy startup that most definitely employs one very attractive young lady in an "admin" role, but her primary function is most definitely social recruiting.
websitescenes 13y ago
Oh man, I have these exact same concerns. There are people out there creating start ups with useless products that only have value because someone invested in them. On the other hand, most of the start ups are expected to fail. The ones that succeed generally have a big enough pay off that all the failed ones can be shrugged off. I think we are in transition where we could go either way. Investors know this and that is why money actually has been tighter.
leefrank 13y ago
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brianmcconnell 13y ago
I've lived in SF since the early 90s and have been through several business cycles. It feels like 1999 all over again, maybe 1998. A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone). Property prices and rents in SF have spiked 30-40%, in some cases doubled, in less than a year. Same pattern as with the NASDAQ in 1999-2000. This is predictably driving the cost of doing business up, especially for companies that need to pony up for an actual office, payroll, etc. Of course the details are different from 1999, but it feels a lot like that time. As Mark Twain said "History doesn't repeat itself, but it does rhyme."
- jamesaguilar 13y ago
  > A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone). To be fair, this is a lot more feasible now than it was back then. I'm not sure what's making it so. Higher volume of willing-and-able-to-internet customers? Better routing? But I cite as evidence the number of established players who are dipping their toes into the same-day-service market.
  - eli_gottlieb 13y ago
    I'd be more willing to believe in pet-goods delivery as part of a generalized grocery-delivery service.
    - potatolicious 13y ago
      Normally yes, but NYC is sort of the Big Exception in the US - it's the only city in the country where the density is so insanely high that I can imagine niche delivery businesses surviving. We've seen this with eBay Now - the economics are sustained by limiting service to only zip codes with sufficient density.
    - dhimes 13y ago
      I agree. The main problem with the original idea, IIRC, is that the product is cheap and heavy-- low margins and high shipping costs. The consumer was simply better off getting it at the store.
tsunamifury 13y ago
When you are writing about the beginning of a bubble, you are likely midway through it. When people are starting to think a bubble might pop, likely it already has. This is my third bubble I find they have more opportunity than downside with one major exception: VC's in their blind hype turn fundraising into a wicked market where silly unsustainable ideas are highly valued and solid business opportunities are shoved to the side as boring.
- jacques_chester 13y ago
  Which suggests that there is a profitable niche to look at. Call it value-based VC.
mkramlich 13y ago
from the article: "hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job" suddenly understanding the attraction of living in SF/SV
- yid 13y ago
  > suddenly understanding the attraction of living in SF/SV Don't get your hopes up. I've had drunken engineers come up to me in a bar (Bourbon & Branch, no less) -- slurring words -- times I was sure they wanted to hit on my girlfriend or start a fight for some reason, where after a few seconds of direct eye contact, they pull out their phone and say "heeey maan, want to try my app?"
LiweiZ 13y ago
There are articles talking about the possible bubble and they are easy to be found. I would like to add just one thing: we are still in the biggest recession and fiat money is printed like crazy. There has to be some places those money flows into. And given the quickly shifting age, industries seem to be broken in one way or another sooner than before. I agree with the author that bubble is here. However, it might take longer than expected to burst. As long as what we do actually delivers better value to customers, I believe we can still survive.
beat 13y ago
The real driver of a bubble is the idea of a "get rich quick" investment mechanism that pulls in rewards out of proportion to risk, which inflates the capital within that investment, which inflates the bubble. Are we there yet? I don't see it. When I think "bubble", I think of two - the old dotcom bubble, and the housing bubble. The housing bubble was driven by those nasty CDOs, which produced abnormal rates of return on AA/AAA securities, while leaving their value vulnerable to problems with the sub-prime market. Money pours into the housing market thanks to excessive returns, which both drives up housing prices and drives demand for more mortgages, which reduces proper risk management... a vicious cycle, til the subprimes start defaulting and the prices drop and then the bubble pops. The old dotcom bubble was driven by IPO money from unsophisticated investors, so there was a massive push to get companies public as soon as possible, well before they had solid business models. This drew institutional money into the venture capital market, and again, things got all out of wack, and capital supply was driving startup demand, and weak businesses were getting funding they didn't deserve. So the real marker for a bubble now, imho, isn't whether prices for early stage startups are going up, but rather whether a lot of bad startups are getting funded. Is that really happening? An increase in price suggests otherwise. Supply and demand, people. Sure, demand may be up, but either that increases price, or the market responds by increasing supply. And since the number of quality startups is basically fixed, supply increase means introducing bad startups. And this doesn't even bring in other factors, like pg's marvelous observations about how startups need less Series A money these days generally, and the rise of super-angels, angel syndicates, and online tools like AngelList and Gust. tl;dr Demand != bubble
- JonFish85 13y ago
  > The old dotcom bubble was driven by IPO money from unsophisticated investors Curious how the advent of companies like WeFund et al. will change this. As much as people like the "feel-good" aspect of the common man being able to invest in start-ups, I'm interested in seeing how this turns out. It's been said a thousand times, but for every Facebook / Google startup there are many, many more that crash & burn that simply don't make headlines.
  - ericd 13y ago
scottallison 13y ago
Great post. It was last year that there was a lot of chatter from everyone, worrying that we were in a bubble. Since then the talk of bubble has apparently decreased but the real signs of a bubble have accelerated, in particular, crazy living costs. Very worried to read that this is still happening: "Companies raising money at $15MM+ plus valuations with no traction and no real vision..."
moron4hire 13y ago
This is why I firmly believe in living within ones means and not taking other people's money. The only times I've seriously worried about money is when I was deeply in debt. As soon as the debt was gone, I... became a much more difficult person to work with... to put it one way.
weeksie 13y ago
Bubble? I feel like people who are claiming that we are in a startup bubble weren't really around in the 90s. Guys were getting paid $100/hour to do HTML. Just HTML. Literally just HTML. The excess was mind-boggling. In contrast, today it just seems like lots of investors have found a good way to pump money into a reasonable risk pool and extract value. Seems fairly sustainable. In the 90s, companies were doing IPOs and their shares were skyrocketing from public investment. For the most part right now it's institutional investors who are a lot more qualified than John Q. Public.
- austenallred 13y ago
  It seems odd to me that people are seriously talking about a bubble coming as if it's never been talked about before. It seems to be once a month that there's another article on TechCrunch decrying Silicon Valley as a bubble after stumbling upon the party of some douchebag who watched The Social Network and decided to snort cocaine in Palo Alto. But I quote Peter Thiel's "Party like it's 1999" lecture: http://blakemasters.com/post/20582845717/peter-thiels-cs183-startup-class-2-notes-essay http://blakemasters.com/post/20582845717/peter-thiels-cs183-... "Bubbles arise when there is (1) widespread, intense belief that’s (2) not true. But people don’t really believe in anything in our society anymore. You can’t have a bubble absent widespread, intense belief. The incredible narrative about a tech bubble comes from people who are looking for a bubble. That’s more overreaction to the pain of the ‘90s than it is good analysis." In other words, if the majority of people believe there is a bubble, there is not, by definition, a bubble. Valuations for seed-rounds are frothy because there are a lot of investors competing and looking for astronomical returns, but Series A is still hard to come by. Just a couple days ago there was an article on HN about "avoiding the Series A crunch," and today we have a "what to do in the bubble" article. If anything is widespread, it's good old fashioned paranoia.
  - berntb 13y ago
    >>If anything is widespread, it's good old fashioned paranoia. Well, you will see this as paranoia then: There were lots of people arguing like you that there were no bubble -- just until it burst. For instance, this "everyone learn to code to earn money" thing imho indicates that it is highly likely that the programming profession will burst in a short while. Again. (The reason there is a lack of software people now is at least partly because everyone stopped studying computer science after the IT death.) Edit: jonnathanson (and others) answers you better than me https://news.ycombinator.com/item?id=6440516 https://news.ycombinator.com/item?id=6440516
minimax 13y ago
If you are a startup and you think valuations are peaking, wouldn't it be smart to raise as much money as you can while valuations are still high?
physcab 13y ago
"I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant. If you had money to invest you felt like you had to have most of it in the stock market, because money parked in bonds would miss out on all this growth that was coming. Back in the 90s I was sure there was a bubble happening, and was notorious for telling everyone to sell. And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg." -pg https://news.ycombinator.com/item?id=2231352 https://news.ycombinator.com/item?id=2231352
- deleted 13y ago
  [deleted]
- 7Figures2Commas 13y ago
  > And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. I know PG's comment was posted 950 days ago but I'd be interested to know how he feels about bonds now.
vibhugupta 13y ago
Every bubble I believe gives opportunity to a selected few who can stand out in terms of competition and competence. Definitely there's a lot of people who will make a lot of money and get successful very fast..the billion dollar question is to identify those companies among a 100 others which will fail or do only meagrely well.
ffrryuu 13y ago
We are already in the middle of a bubble, it'll shortly translate to huge salary increases, you just need to job hop :) This year average salary is up at least 15k from last year.
Mikeb85 13y ago
While I'm cautious to call anything a 'bubble', right now tech is looking a bit over-valued, and the internet startup space is way too crowded... I'd personally avoid investing in anything tech related, with a few exceptions.
dm8 13y ago
"a significant uptick in the number of parties, hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job" That is a pretty bad strategy to hire from founder's perspective. Will reasonably smart engineers like these strategies? On a related note, a friend of mine was telling me that he saw someone (on OkCupid) mentioning about contacting her only if you are engineer since her startup is hiring engineers. Ha!
arbuge 13y ago
It seems to me to be a bubble of sorts, although a strange one. It mostly seems to be centered around AngelList in general and the seed stage universe in particular, where valuations of very early stage startups with cool videos are totally out of whack with where they should be in my opinion. But because the amount of money moving around at this stage is still pretty small - it is early stage after all, so each deal is still tiny in absolute terms - there is less of a bubble effect than one would expect. Reality might be harsh for those startups when they come to long for bigger rounds in future though.
znowi 13y ago
I shall bookmark this discussion and get back to it in a couple of years :)
camkego 13y ago
Have you seen the ads purchased by Lumosity on cnn.com This indicates to me there might be a little too much loose money floating around.

172 points by fjw 13y ago

pnachbaur 13y ago

Sounds like solid advice to companies - what about advice for young engineers?

TylerE 13y ago
Sell shovels.
a-priori 13y ago
As an employee you have fairly little to lose if you play your cards right. That's the benefit of the employer-employee relationship and being compensated primarily in wages. So my advice is to ride the bubble because the inflated salaries and other compensation are good for you, but be mindful of what might happen if the bubble pops. If it's bad enough, you might be left unemployed with very few job prospects for a period of time. Don't inflate your lifestyle, and use the opportunity to build up a large savings account. If the bubble pops, that'll tide you over for a long period of unemployment until the job market recovers or give you breathing room where you can pivot your career. If all this talk about bubbles turns out to be just fear-mongering and it doesn't pop in the end, it's still money in your pocket you can use to bootstrap your own company or eventually retire on. The worst things to do are to spend all the money you have, or invest it in bubbled assets that might evaporate.
- quaffapint 13y ago
  It must be in the valley that there is 'inflated salaries'. Around mid-atlantic salaries never recovered from the economic downturn, and they show no sign of ever doing so.
  - a-priori 13y ago
    I'm giving advice for a scenario where salaries are inflated due to a bubble. For the record, I'm not in the valley either.
ChuckMcM 13y ago
If you are a young/new engineer in a bubble you should recognize that excess salary is a function of the bubble, not your actual value. To that end bank as much excess salary as you can, (keep your personal burn rate low) and don't set your internal 'value meter' by a company that so desperately needed engineers they over paid for them. I saw several engineers in the dot-com crush, graduate, work for a year at some BigCorp, then go to work for a startup as "Chief Architect" or some other vaulted title, lose their job when the crash hit, and then found themselves unemployable at some really vaulted title and salary because they really only had 3 - 4 years experience and it wasn't all that broad. That was sad to watch. Don't be that engineer if this is another bubble.
- pnathan 13y ago
  FYI, I've been seeing a variety of title inflation - lots of "Senior" styled people without the 7-12 years of industry experience to back it up. This seems particularly prevalent in the startup sector. In my experience, YMMV, etc, etc. Just something I noticed in my looking for work 1H2013.
  - hackula1 13y ago
    Titles are the cheapest benefit an employer can provide.
nilkn 13y ago
There's an easy heuristic here. Look at a segment of the industry which is unambiguously not in a bubble and ask yourself whether you could get hired there doing similar work with a similar salary. There's one hitch here: if the entire startup scene were to bust, there'd be a massive excess of developers vying for the traditional stable jobs at traditional profitable companies. This would significantly raise the bar for getting hired while potentially lowering salaries.
ekidd 13y ago
I was successfully freelancing and doing quite well in 1999 and 2000, and it was pretty interesting watching the wheels all come off in 2001. Here's a very subjective idea of what it felt like to me: - The bubble "burst" over about 9 months in the greater Boston area, give or take. - For about 3 months, it was nearly impossible to get hired no matter how good you were. Everyone was laying off solid senior engineers with tons of in-house knowledge, so why would they hire? - The area immediately around Boston recovered slowly, because there were just too many unemployed engineers. - My ~23yo friend who held $250,000 of stock watched it drop to almost nothing during his post-IPO handcuff period. - Any company which sold to startups, or which sold to companies which sold to startups, etc., pretty much died horribly. Huge, successful, awesome companies just evaporated. I was young and single, so I simply skipped out of the "blast zone" around Boston, waited a few months, and started applying to cool, small shops in second or third-tier cities that didn't have a huge number of unemployed programmers. Got a good job, had fun, got a bunch of raises, etc. The financial advice in the other comments is good. Make sure you have a year's cushion if you can. If you're good, you love programming, and you can relocate, you can ride out a lot. Plenty of interesting small companies are unable to hire in this market, and most will be around post-crash. Take a salary cut, get an interesting job, and help somebody make some money.
jarofgreen 13y ago
Basically, if it is a bubble then you can expect that your salary will go down or you will suffer a period of unemployment or both. Don't take on extra debt now (like buying an extra fancy house on a giant mortgage) that will trap you later.

danielpal 13y ago

A bubble occurs when prices are driven by view on the future that are implausible or inconsistent. It seems that current high prices are mostly driven by "investment" competition - meaning that startups can raise prices at early stage because there are too many investors. This doesn't seem to be happening at later stages (B rounds) or public companies. What this means is that returns for initial investors is going to be lower - but it still might be sustainable. Companies usually will grow past +$15M when they do well.

the_watcher 13y ago

Very interesting to read his advice to be wary of hiring the day after his post on the importance of hiring. These two posts aren't contradictory at all, but those who read his piece yesterday and responded well to it should definitely read this as well.

dasil003 13y ago
I thought his hiring post was incredibly useful despite a couple disagreements I had. This one on the other hand seems much less useful. The fact is a bubble is only obviously in retrospect, and the forces that led to the dotcom bubble (completely unknown potential of "The Internet" combined with a deluge of dumb money due to easy IPOs and accompanying hype cycle) are no longer present, and thus any future bubble will look completely different and the conventional wisdom won't spot it coming.
- the_watcher 13y ago
  I think I agree. I think this post works in complement to the hiring one (mainly the treat your cash like the last you'll raise and the warning that people are a huge expense).

wellboy 13y ago

I think it's a bubble in terms of the people, many big egos. In these times you should how to not have an no ego at all, if you don't have an ego, no one can leverage that to make you do things. The actual founder-founders, the inventors of the ideas however, are totally aware of that situation and let the startup people with the big egos do the CEO jobs while pulling the strings in the background. It's not a bubble in terms of the actual startups, because it's all based on users that actually use the apps a lot. The more usage an app has, the harder it is to kill. After the whole solomo, photo sharing hype, investors have become very cautious, so I don't actually believe money is cheap now. However, it's an ego bubble right now, startups get press before being ready, pursue vanity metrics that actually will kill the company, their own startups are growing over their heads. So it's maybe a people/ego bubble right now, which could turn into a full bubble, but time will show.

spindritf 13y ago

> And no one is talking about a bubble anymore Another great poster stopped reading HN.

tptacek 13y ago
There's a subtext you're missing.
- spindritf 13y ago
  Well, it's hard to know what you don't know.
benatkin 13y ago
Oh please. It's an idiom.

kjackson2012 13y ago

If there is a bubble, it's most certainly not starting, it's ending. With the Fed tapering imminent, and interest rates starting to rise, there's no way that a bubble will be starting at this point. If anything, it will pop a bunch of near-bubbles, like Bay Area real estate, rent prices, stock market, etc.

deleted 13y ago
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limejuice 13y ago
There is no Fed tapering imminent. They just voted last week to keep the $85 BLN/month flowing on a 9-1 vote. During dot.com bubble, the short term interest rate was 5%+ in 1998 and 1999, and that didn't stop that bubble. The Fed only belatedly raised rates to 6% in 2000 when the bubble went parabolic. The Fed is always slow to raise rates, and rates are at 0%. It could be years before we are at 2% rates with FOMC incrementing 0.25% every quarter or so, and 2% rates is still very stimulative. Right now, the Fed isn't even talking about raising interest rates. They have only been talking about reducing the $85 BLN/month $$ printing, but even that is on hold as of the last FOMC meeting where they voted 9 to 1 to not taper. The Fed still has the pedal to the metal, and have publicly stated they do not see a bubble anywhere (just like they said there was no housing bubble back in 2006-2007). Don't get shaken out of the market just because the Fed talks about tapering its $$ printing from $85BLN/month to $75BLN/month. The current environment is still very stimulative for stocks. If there is a bubble, it won't pop because of the Fed. It will pop after the momentum is exhausted and it collapses from its own weight.
encoderer 13y ago
According to Trulia's research, it will be cheaper to rent than buy in the Bay Area when interest rates hit 5.5%. For most of the rest of the country the rates would have to hit over 10% (!!!) for that to be true. So it should prove interesting what happens then. That said, my wife and I are in the middle of (trying) buying a house here. So far, there is intense competition amongst buyers. One home we put an offer on had 19 offers total. We offered 21.5% over asking and at least 3 offers came in ahead of us.

CodeCube 13y ago

Thinking back to about 2007, I remember the frothy fervor surrounding all of the new "web 2.0" companies that were coming on the scene back then. I thought for sure that the tech industry was about to see another apocalyptic event as the web 2.0 bubble popped. Thankfully, that bubble never popped (although another one did in '08). I think it's healthy for people to be paranoid of another bubble forming ... it helps potentially keep it at bay. At least, that's what I tell myself :P

randomdata 13y ago
I believe the "web 2.0" bubble did pop in 2008. However, we saw the rise of the "app economy" at the same time. Anyone failing in the web 2.0 sector could easily, and often transparently, pivot to the sudden demand for mobile applications. Whether that is a sign of the software industry maturing, or if it was just plain good luck, remains to be seen.

bfe 13y ago

A permanent, secular rise in the maturity of the tech startup ecosystem (and of "software eating everything") would exhibit many of the same signs of high growth, or the same collection of Verhulst growth curves in disparate indicators, as a bubble. Dev salaries, SoMa rents, and MBA hanger-on density are probably useless in distinguishing between the two.

eli_gottlieb 13y ago
In which case, we need some distinguishing factor, because you just argued for investing in a bubble ;-).
- sillysaurus2 13y ago
  Investing in a bubble is a good thing, though. Without it we'd have no Paypal (and hence no Musk).
  - bfe 13y ago
    It's great for technology and society. It's not great for you when you invest your own or someone else's cash on the wrong side of the burst.
- bfe 13y ago
  Sure. Growth in value, as measured in users plus at least one of profits or strategic value. I see Tesla, SpaceX, Twitter, and Github and I do not see a bubble. Instagram and Tumblr are good examples of growth in strategic value being enough.
  - eli_gottlieb 13y ago
    I don't actually see the separate and distinct economic value creation in Instagram, Twitter, or Tumblr, nor do I see the economic value capture in Github. But Tesla and SpaceX are just fucking awesome.
    - 13y ago

twakefield 13y ago

Bubbles are usually preceded by some regulatory or legislative change(s) that fuels them. This legislation usually has good intentions but falls victim of unintended consequences. For example, you can trace the housing bubble to the easing of lending standards through the modifications of the Community Reinvestment Act in the late 90s [1]. Legislation that creates new investments opportunities, coupled with cheap capital is a dangerous combination. I would not be surprised if the new JOBS Act [2] provides the spark and the Fed's loose monetary policy provides the fuel that creates a startup bubble (quickly). Companies like Angel List [3] and Wefunder [4] have been quick to recognize this and take advantage of the new demand pockets the JOBS Act creates. Just check out their home pages. As Sam mentions, there may be some time before it bursts, but it's very tough to figure out when it will be...and early stage company shares are not liquid. [1] http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act [2] http://en.wikipedia.org/wiki/JOBS_Act http://en.wikipedia.org/wiki/JOBS_Act [3] https://angel.co/ https://angel.co/ [4] https://wefunder.com/ https://wefunder.com/

bfe 13y ago
Blaming the CRA has been extensively debunked. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/no-marco-rubio-government-did-not-cause-the-housing-crisis/ http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/n... http://www.ritholtz.com/blog/2011/11/a-global-view-of-the-housing-bubble/ http://www.ritholtz.com/blog/2011/11/a-global-view-of-the-ho... http://www.cepr.net/index.php/blogs/beat-the-press/the-blame-the-community-reinvestment-act-industry http://www.cepr.net/index.php/blogs/beat-the-press/the-blame...
- the_watcher 13y ago
  Those do not extensively debunk the CRA's influence. At best, they split hairs and show that CRA is not completely at fault and that we should blame Wall Street. I'm on board with blaming Wall Street for a lot of the problems (they went much further beyond rationally using the CRA's policies and instead went whole hog into "lend to everyone!"), but this strikes of "Sure, the legislation created perverse incentives and encouraged risky lending practices (which unsurprisingly spiraled much further out of control than the CRA intended into non-CRA covered loans), but the real problem is the people who acted on these perverse incentives!"

maerF0x0 13y ago

or feed it like wefunder.com will do .

thrush 13y ago

Would anyone mind elaborating on how the current bubble could compare to the DotCom bubble? I could see them being similar because they are both related to tech, but for some reason I don't feel too scared right now (the DotCom bubble popping was pretty bad, right?).

enjo 13y ago
The tech bubble of the late 90's was a fascinating phenomenon. It was global and widespread. My grandmother had significant money in tech stocks at the time. The overall amount of money we're talking about here is MUCH smaller than that. A couple of orders of magnitude at least. As such the effects of any bubble popping aren't going to have widespread consequences here. A major pullback in funding will definitely affect engineers. Jobs will simply be a bit harder to find, but there are so many technology companies operating outside of the startup funding domain that I don't think it will be terribly impactful. The worst case is we go back to like 2005, which isn't really too bad at all.
omegant 13y ago
There is a saying: if the grocery's attendant is telling you which stock to buy, better run and sale everything. In Spain I had big discussions with people about how expensive buying a home was (back in 2005), that it wasn't sustainable, and that prices will go down. People stared at me as If I were an idiot. Usually with all the atention and a good portion of the money is going in one direction, there is probably a bubble. I don't think there is one very big right now with startups, maybe a bit with mobile App(excess investments). But planets are aligning to allow a big one, now with the new law. We'll see..

devanti 13y ago

It would be more interesting if he could talk about how to take advantage of a bubble

Afforess 13y ago
That's easy. Keep plenty of liquidity, buy undervalued assets post-crash.
- hackula1 13y ago
  Exactly. People seem to think that you make money by riding a bubble to the top, then jumping off when the timing is right at its peak. Turns out that is a great way to lose money (nobody jumps off fast enough). The real money is made cleaning up after a disaster.
- logicallee 13y ago
  That's one strategy. Plenty of liquidity means (literally) that you're rich. So your strategy is 1) be rich 2) buy undervalued assets post-crash. Your strategy is okay. For those set of assumptions I suggest you remove the second step, which might significantly reduce your being rich. So, 1) Keep plenty of liquidty. Buy nothing pre- or post-crash. This has a very high probability of keeping you rich. Now on to us mere mortals. In bubble times did you know you can actually start a company with like a few hundred dollars, start delivering product and getting users, and get investment to accelerate the process? That way, you can build a company with cheap capital even if you're not already "plenty liquid", as you might put it.
MarkTanamil 13y ago
Short Facebook.
- hamburglar 13y ago
  Shorting stocks during a bubble is a great way to learn about bounded upside and unbounded downside. I guess in some sense a valuable learning experience is "taking advantage."

aliston 13y ago

"... a significant uptick in the number of parties, hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job..." Is anyone else noticing this phenomenon? Apparently I'm not invited to the right parties...

marchra 13y ago
omg, u missed Pharrel?
spectre256 13y ago
Even if you aren't noticing it, you're not missing out. To reuse a great Mel Brooks line, the girls have an opening they're looking for you to fill, but it's not the interesting kind: at best a Sr Software Engineer at some massive company writing Java on a team that "is just like a small startup in a big company".
- redblacktree 13y ago
  > is just like a small startup in a big company That's my favorite line. It lets me know to run the other way. Often, when people use that line on me, I ask about the equity I'll get as part of the deal. Usually, it turns out that they want founder-level enthusiasm without the pay.
  - vkou 13y ago
    My second job (For the software product arm a large investment bank) was actually advertised like that. The pay was great, and so were the hours & work environment. Mind you, when I got the job, I thought I caught a unicorn.

deleted 13y ago

[deleted]

dataisfun 13y ago
quick fix (you mean, not in a bubble :) Not trolling, promise :)

dataisfun 13y ago

Thanks Sam. I love your posts! I think the rise in startup valuations, even at the early stage, while a bit frothy (and definitely more so in the bay area) is driven by some structural changes (i.e., the leverage allowed by the new tools which make development cheaper/faster) and access to much bigger markets (mobile, anyone?). "Hot girls" at the bar looking for a job are probably doing so because tech is one of the few non-sucky sectors for young people. Founders investing their capital in other startups doesn't strike me as so weird, given how Angel List and Funders Club, etc. are making it ridiculously easy to put a bit of money to work. Founders with disposable income used to invest in public equities and bonds if they wanted to. Now, startups. There are trillions of dollars still sitting on the sidelines chasing growth. Not even a tiny fraction of that has been deployed to VC (mostly because the returns, in aggregate, are still pretty bad). Should that happen, I might begin to be a little apprehensive.

enjo 13y ago
I think "hot girl" phenomenon he is referring to is girls recruiting engineers. I've definitely noticed that happening among startups both in the bay area and elsewhere. I know of one trendy startup that most definitely employs one very attractive young lady in an "admin" role, but her primary function is most definitely social recruiting.

websitescenes 13y ago

Oh man, I have these exact same concerns. There are people out there creating start ups with useless products that only have value because someone invested in them. On the other hand, most of the start ups are expected to fail. The ones that succeed generally have a big enough pay off that all the failed ones can be shrugged off. I think we are in transition where we could go either way. Investors know this and that is why money actually has been tighter.

leefrank 13y ago

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brianmcconnell 13y ago

I've lived in SF since the early 90s and have been through several business cycles. It feels like 1999 all over again, maybe 1998. A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone). Property prices and rents in SF have spiked 30-40%, in some cases doubled, in less than a year. Same pattern as with the NASDAQ in 1999-2000. This is predictably driving the cost of doing business up, especially for companies that need to pony up for an actual office, payroll, etc. Of course the details are different from 1999, but it feels a lot like that time. As Mark Twain said "History doesn't repeat itself, but it does rhyme."

jamesaguilar 13y ago
> A couple months ago I saw an ad on the NY subway for a company that delivers dog food and pet supplies to your door (deja vu anyone). To be fair, this is a lot more feasible now than it was back then. I'm not sure what's making it so. Higher volume of willing-and-able-to-internet customers? Better routing? But I cite as evidence the number of established players who are dipping their toes into the same-day-service market.
- eli_gottlieb 13y ago
  I'd be more willing to believe in pet-goods delivery as part of a generalized grocery-delivery service.
  - potatolicious 13y ago
    Normally yes, but NYC is sort of the Big Exception in the US - it's the only city in the country where the density is so insanely high that I can imagine niche delivery businesses surviving. We've seen this with eBay Now - the economics are sustained by limiting service to only zip codes with sufficient density.
  - dhimes 13y ago
    I agree. The main problem with the original idea, IIRC, is that the product is cheap and heavy-- low margins and high shipping costs. The consumer was simply better off getting it at the store.

tsunamifury 13y ago

When you are writing about the beginning of a bubble, you are likely midway through it. When people are starting to think a bubble might pop, likely it already has. This is my third bubble I find they have more opportunity than downside with one major exception: VC's in their blind hype turn fundraising into a wicked market where silly unsustainable ideas are highly valued and solid business opportunities are shoved to the side as boring.

jacques_chester 13y ago
Which suggests that there is a profitable niche to look at. Call it value-based VC.

mkramlich 13y ago

from the article: "hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job" suddenly understanding the attraction of living in SF/SV

yid 13y ago
> suddenly understanding the attraction of living in SF/SV Don't get your hopes up. I've had drunken engineers come up to me in a bar (Bourbon & Branch, no less) -- slurring words -- times I was sure they wanted to hit on my girlfriend or start a fight for some reason, where after a few seconds of direct eye contact, they pull out their phone and say "heeey maan, want to try my app?"

LiweiZ 13y ago

There are articles talking about the possible bubble and they are easy to be found. I would like to add just one thing: we are still in the biggest recession and fiat money is printed like crazy. There has to be some places those money flows into. And given the quickly shifting age, industries seem to be broken in one way or another sooner than before. I agree with the author that bubble is here. However, it might take longer than expected to burst. As long as what we do actually delivers better value to customers, I believe we can still survive.

beat 13y ago

The real driver of a bubble is the idea of a "get rich quick" investment mechanism that pulls in rewards out of proportion to risk, which inflates the capital within that investment, which inflates the bubble. Are we there yet? I don't see it. When I think "bubble", I think of two - the old dotcom bubble, and the housing bubble. The housing bubble was driven by those nasty CDOs, which produced abnormal rates of return on AA/AAA securities, while leaving their value vulnerable to problems with the sub-prime market. Money pours into the housing market thanks to excessive returns, which both drives up housing prices and drives demand for more mortgages, which reduces proper risk management... a vicious cycle, til the subprimes start defaulting and the prices drop and then the bubble pops. The old dotcom bubble was driven by IPO money from unsophisticated investors, so there was a massive push to get companies public as soon as possible, well before they had solid business models. This drew institutional money into the venture capital market, and again, things got all out of wack, and capital supply was driving startup demand, and weak businesses were getting funding they didn't deserve. So the real marker for a bubble now, imho, isn't whether prices for early stage startups are going up, but rather whether a lot of bad startups are getting funded. Is that really happening? An increase in price suggests otherwise. Supply and demand, people. Sure, demand may be up, but either that increases price, or the market responds by increasing supply. And since the number of quality startups is basically fixed, supply increase means introducing bad startups. And this doesn't even bring in other factors, like pg's marvelous observations about how startups need less Series A money these days generally, and the rise of super-angels, angel syndicates, and online tools like AngelList and Gust. tl;dr Demand != bubble

JonFish85 13y ago
> The old dotcom bubble was driven by IPO money from unsophisticated investors Curious how the advent of companies like WeFund et al. will change this. As much as people like the "feel-good" aspect of the common man being able to invest in start-ups, I'm interested in seeing how this turns out. It's been said a thousand times, but for every Facebook / Google startup there are many, many more that crash & burn that simply don't make headlines.
- ericd 13y ago

scottallison 13y ago

Great post. It was last year that there was a lot of chatter from everyone, worrying that we were in a bubble. Since then the talk of bubble has apparently decreased but the real signs of a bubble have accelerated, in particular, crazy living costs. Very worried to read that this is still happening: "Companies raising money at $15MM+ plus valuations with no traction and no real vision..."

moron4hire 13y ago

This is why I firmly believe in living within ones means and not taking other people's money. The only times I've seriously worried about money is when I was deeply in debt. As soon as the debt was gone, I... became a much more difficult person to work with... to put it one way.

weeksie 13y ago

Bubble? I feel like people who are claiming that we are in a startup bubble weren't really around in the 90s. Guys were getting paid $100/hour to do HTML. Just HTML. Literally just HTML. The excess was mind-boggling. In contrast, today it just seems like lots of investors have found a good way to pump money into a reasonable risk pool and extract value. Seems fairly sustainable. In the 90s, companies were doing IPOs and their shares were skyrocketing from public investment. For the most part right now it's institutional investors who are a lot more qualified than John Q. Public.

austenallred 13y ago
It seems odd to me that people are seriously talking about a bubble coming as if it's never been talked about before. It seems to be once a month that there's another article on TechCrunch decrying Silicon Valley as a bubble after stumbling upon the party of some douchebag who watched The Social Network and decided to snort cocaine in Palo Alto. But I quote Peter Thiel's "Party like it's 1999" lecture: http://blakemasters.com/post/20582845717/peter-thiels-cs183-startup-class-2-notes-essay http://blakemasters.com/post/20582845717/peter-thiels-cs183-... "Bubbles arise when there is (1) widespread, intense belief that’s (2) not true. But people don’t really believe in anything in our society anymore. You can’t have a bubble absent widespread, intense belief. The incredible narrative about a tech bubble comes from people who are looking for a bubble. That’s more overreaction to the pain of the ‘90s than it is good analysis." In other words, if the majority of people believe there is a bubble, there is not, by definition, a bubble. Valuations for seed-rounds are frothy because there are a lot of investors competing and looking for astronomical returns, but Series A is still hard to come by. Just a couple days ago there was an article on HN about "avoiding the Series A crunch," and today we have a "what to do in the bubble" article. If anything is widespread, it's good old fashioned paranoia.
- berntb 13y ago
  >>If anything is widespread, it's good old fashioned paranoia. Well, you will see this as paranoia then: There were lots of people arguing like you that there were no bubble -- just until it burst. For instance, this "everyone learn to code to earn money" thing imho indicates that it is highly likely that the programming profession will burst in a short while. Again. (The reason there is a lack of software people now is at least partly because everyone stopped studying computer science after the IT death.) Edit: jonnathanson (and others) answers you better than me https://news.ycombinator.com/item?id=6440516 https://news.ycombinator.com/item?id=6440516

minimax 13y ago

If you are a startup and you think valuations are peaking, wouldn't it be smart to raise as much money as you can while valuations are still high?

physcab 13y ago

"I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant. If you had money to invest you felt like you had to have most of it in the stock market, because money parked in bonds would miss out on all this growth that was coming. Back in the 90s I was sure there was a bubble happening, and was notorious for telling everyone to sell. And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg." -pg https://news.ycombinator.com/item?id=2231352 https://news.ycombinator.com/item?id=2231352

deleted 13y ago
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7Figures2Commas 13y ago
> And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. I know PG's comment was posted 950 days ago but I'd be interested to know how he feels about bonds now.

vibhugupta 13y ago

Every bubble I believe gives opportunity to a selected few who can stand out in terms of competition and competence. Definitely there's a lot of people who will make a lot of money and get successful very fast..the billion dollar question is to identify those companies among a 100 others which will fail or do only meagrely well.

ffrryuu 13y ago

We are already in the middle of a bubble, it'll shortly translate to huge salary increases, you just need to job hop :) This year average salary is up at least 15k from last year.

Mikeb85 13y ago

While I'm cautious to call anything a 'bubble', right now tech is looking a bit over-valued, and the internet startup space is way too crowded... I'd personally avoid investing in anything tech related, with a few exceptions.

dm8 13y ago

"a significant uptick in the number of parties, hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job" That is a pretty bad strategy to hire from founder's perspective. Will reasonably smart engineers like these strategies? On a related note, a friend of mine was telling me that he saw someone (on OkCupid) mentioning about contacting her only if you are engineer since her startup is hiring engineers. Ha!

arbuge 13y ago

It seems to me to be a bubble of sorts, although a strange one. It mostly seems to be centered around AngelList in general and the seed stage universe in particular, where valuations of very early stage startups with cool videos are totally out of whack with where they should be in my opinion. But because the amount of money moving around at this stage is still pretty small - it is early stage after all, so each deal is still tiny in absolute terms - there is less of a bubble effect than one would expect. Reality might be harsh for those startups when they come to long for bigger rounds in future though.

znowi 13y ago

I shall bookmark this discussion and get back to it in a couple of years :)

camkego 13y ago

Have you seen the ads purchased by Lumosity on cnn.com This indicates to me there might be a little too much loose money floating around.