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> Private money doesn't (I hope) break the economy in the same way that public money can. If VCs go bust there are ramifications, but these markets are not tha

> Private money doesn't (I hope) break the economy in the same way that public money can. If VCs go bust there are ramifications, but these markets are not that liquid. There aren't margin calls going off and forcing fire sales. Too many people trying to compare today's bubble to the first bubble are making the mistake of assuming that it's being led by tech. It isn't. The current "tech bubble" is just one of multiple bubbles being driven by an even larger bubble in public equities. When the public equities bubble bursts, Silicon Valley will this time be a victim, not the culprit. And there are going to be lots of other victims as well. > Smaller, younger startups would be in for hard times if investment stopped coming in, but 1,000 $10m (on paper) startups going under is a just 1,000 individual failures. This is correlated in the sense that a shortage of cash would effect them all, but it's not systemic in that their failure would extend far beyond the investors, founders & employees that understand the risk. How many people are employed by these startups? How would a glut of now-unemployed startup workers affect wage trends? How many non-tech businesses in the Bay Area are thriving on the tech funny money? Companies like Google and Facebook aren't going anywhere, even if their stock prices become heavily depressed for some time. And despite tech's prominence, the Bay Area economy is still fairly diverse. But it's short-sighted to believe that a significant decline in the number of funded startups would be of minimal impact to anyone but investors, founders and employees.

avn2109 12y ago
>> "The current "tech bubble" is just one of multiple bubbles being driven by an even larger bubble in public equities..." This is interesting. Could you elaborate on some of the other sub-bubbles? Not being facetious, am really curious.
- orbifold 12y ago
  I know nothing about finance but the Federal Reserve has provided new money at almost no interest to banks for a fairly long period of time from ~2008 onwards (this was called quantitative easing). This essentially forced the EU and countries like Switzerland to do the same, if they did not want their currency to get too strong. It is not a stretch of imagination that this fueled much of the current stock market boom, both Euro and Dollar have lost a lot of value at roughly the same pace.
  - VonGuard 12y ago
    Yeah, the fed loans money to banks at, essentially, zero interest, and the banks then use it to invest in the stock market, or some such. They make money, because the market isat all-time highs. They pay back the fed, and keep their profits. All the major firms do this. It's nuts, but our government literally lends free money to investors on Wall Street so they can make millions of dollars on trades. Of course, this all comes tumbling down when the markets are in bad shape. And, unlike most people in this thread, I fully expect any and all bubbles to burst due to some outside influence: Ebola, 9/11, war, etc. Something big happens to scare the markets, and the big party here in the Valley is over. Who know when that will happen, but it feels like the next year or so will be the time frame, if my gut is any indication. Burn that capital while you can, folks!
- clomond 12y ago
  There is a real-estate / state government sourced investment bubble in China ATM. In short, the Chinese federal government sets GDP growth targets for each and every state. Every state is therefore obligated to meet these targets. Post 2009, real GDP growth has been underperforming, and more of the remaining GDP has to be made up for in infrastructure spending (which includes building apartments, airports, and the usual roads, bridges rails etc on debt). This is visible in various "ghost" cities and malls which have popped up recently (in addition to undercapacity airports and elaborate train stations). This in itself isn't necessarily a problem. The problem comes in when increasingly, a large amount of the money the states are lending is coming from "shadow loans" (unregulated black-market loans, analogous to sub-prime mortgages (kindof)) because regular forms of more legitimate financing have dried for these purposes (too much infrastructure already). This is simultaneously fueled by difficulties rich Chinese have in being able to invest abroad, leaving condos in these ghost cities being owned, and purchased by investors' excess capital as assets (similar to a real estate bubble as what happened in Dubai a few years ago). This excess capital, sourced from underperforming Chinese states leaking over to other markets, have been responsible for local real estate bubbling over in major cities like London, Vancouver, San Francisco, New York, etc by foreign nationals buying these properties as investments as a way to shelter money. It's very likely this capital is also indirectly being displayed in public equity markets. (note: this is my own analysis of several articles and reports I read, so take it with a grain of salt)
ChuckMcM 12y ago
"The current 'tech bubble' is just one of multiple bubbles being driven by an even larger bubble in public equities." I would be interested in how you reason to that statement. I enjoyed reading Michael Pettis' blog entry[1] about excess capital, which provided an alternative narrative to the rise in equities but it wasn't really a bubble so much as it was just an excess of capital. To your question "How many people are employed by these startups?" I believe the median size is <10 employees[2]. If you dumped 10,000 employees onto the market in the Bay Area it would probably sort out reasonably quickly. I'm still stuck trying to figure out if this is really just a capital excess or a bubble though. [1] http://blog.mpettis.com/2014/09/not-with-a-bank-but-a-whimper/ http://blog.mpettis.com/2014/09/not-with-a-bank-but-a-whimpe... [2] Hard to get precise numbers but you can troll around Crunchbase and other 'tracking' sites and get an idea on the size for "Smaller Younger startups" which is what this question referred to.
- 7Figures2Commas 12y ago
  > I enjoyed reading Michael Pettis' blog entry[1] about excess capital, which provided an alternative narrative to the rise in equities but it wasn't really a bubble so much as it was just an excess of capital. You seem to be splitting hairs. From your referenced blog post: Washington is absolutely correct, in my opinion, to want to boost American consumption, but the Fed seems to be trying to boost consumption by igniting another asset bubble in the hopes that, like before 2007, Americans will feel “richer” and so will consume more. This isn’t sustainable, however, and will leave us, as Paul and Druckenmiller fear, even more heavily indebted and more dangerously exposed to the underlying weakness in demand. But to answer your question: the strong public equities market has provided investors with the capital and confidence to plow money into investments in private tech companies. > If you dumped 10,000 employees onto the market in the Bay Area it would probably sort out reasonably quickly. Even if we assume that we're looking at just 10,000 people, your assumption that the market will quickly absorb them without much pain is quite optimistic. Companies like Google and Facebook will certainly pick up some of the most skilled folks, but the vast majority of startup employees are not as desirable as many would like to believe, and they won't be able to replace their salaries. Put simply, there are 20-something [insert programming language du jour] developers with a few years of experience making $120,000/year plus benefits at unprofitable angel or venture-backed startups who are going to have to face the reality that their six-figure earning potential is completely dependent on the continued inflow of investment dollars to early-stage startups.
netcan 12y ago
That sounds possible. but new doesn't necessarily mean unstable. private equity is big because of the concentrated wealth of this decade.

avn2109 12y ago

>> "The current "tech bubble" is just one of multiple bubbles being driven by an even larger bubble in public equities..." This is interesting. Could you elaborate on some of the other sub-bubbles? Not being facetious, am really curious.

orbifold 12y ago
I know nothing about finance but the Federal Reserve has provided new money at almost no interest to banks for a fairly long period of time from ~2008 onwards (this was called quantitative easing). This essentially forced the EU and countries like Switzerland to do the same, if they did not want their currency to get too strong. It is not a stretch of imagination that this fueled much of the current stock market boom, both Euro and Dollar have lost a lot of value at roughly the same pace.
- VonGuard 12y ago
  Yeah, the fed loans money to banks at, essentially, zero interest, and the banks then use it to invest in the stock market, or some such. They make money, because the market isat all-time highs. They pay back the fed, and keep their profits. All the major firms do this. It's nuts, but our government literally lends free money to investors on Wall Street so they can make millions of dollars on trades. Of course, this all comes tumbling down when the markets are in bad shape. And, unlike most people in this thread, I fully expect any and all bubbles to burst due to some outside influence: Ebola, 9/11, war, etc. Something big happens to scare the markets, and the big party here in the Valley is over. Who know when that will happen, but it feels like the next year or so will be the time frame, if my gut is any indication. Burn that capital while you can, folks!
clomond 12y ago
There is a real-estate / state government sourced investment bubble in China ATM. In short, the Chinese federal government sets GDP growth targets for each and every state. Every state is therefore obligated to meet these targets. Post 2009, real GDP growth has been underperforming, and more of the remaining GDP has to be made up for in infrastructure spending (which includes building apartments, airports, and the usual roads, bridges rails etc on debt). This is visible in various "ghost" cities and malls which have popped up recently (in addition to undercapacity airports and elaborate train stations). This in itself isn't necessarily a problem. The problem comes in when increasingly, a large amount of the money the states are lending is coming from "shadow loans" (unregulated black-market loans, analogous to sub-prime mortgages (kindof)) because regular forms of more legitimate financing have dried for these purposes (too much infrastructure already). This is simultaneously fueled by difficulties rich Chinese have in being able to invest abroad, leaving condos in these ghost cities being owned, and purchased by investors' excess capital as assets (similar to a real estate bubble as what happened in Dubai a few years ago). This excess capital, sourced from underperforming Chinese states leaking over to other markets, have been responsible for local real estate bubbling over in major cities like London, Vancouver, San Francisco, New York, etc by foreign nationals buying these properties as investments as a way to shelter money. It's very likely this capital is also indirectly being displayed in public equity markets. (note: this is my own analysis of several articles and reports I read, so take it with a grain of salt)

ChuckMcM 12y ago

"The current 'tech bubble' is just one of multiple bubbles being driven by an even larger bubble in public equities." I would be interested in how you reason to that statement. I enjoyed reading Michael Pettis' blog entry[1] about excess capital, which provided an alternative narrative to the rise in equities but it wasn't really a bubble so much as it was just an excess of capital. To your question "How many people are employed by these startups?" I believe the median size is <10 employees[2]. If you dumped 10,000 employees onto the market in the Bay Area it would probably sort out reasonably quickly. I'm still stuck trying to figure out if this is really just a capital excess or a bubble though. [1] http://blog.mpettis.com/2014/09/not-with-a-bank-but-a-whimper/ http://blog.mpettis.com/2014/09/not-with-a-bank-but-a-whimpe... [2] Hard to get precise numbers but you can troll around Crunchbase and other 'tracking' sites and get an idea on the size for "Smaller Younger startups" which is what this question referred to.

7Figures2Commas 12y ago
> I enjoyed reading Michael Pettis' blog entry[1] about excess capital, which provided an alternative narrative to the rise in equities but it wasn't really a bubble so much as it was just an excess of capital. You seem to be splitting hairs. From your referenced blog post: Washington is absolutely correct, in my opinion, to want to boost American consumption, but the Fed seems to be trying to boost consumption by igniting another asset bubble in the hopes that, like before 2007, Americans will feel “richer” and so will consume more. This isn’t sustainable, however, and will leave us, as Paul and Druckenmiller fear, even more heavily indebted and more dangerously exposed to the underlying weakness in demand. But to answer your question: the strong public equities market has provided investors with the capital and confidence to plow money into investments in private tech companies. > If you dumped 10,000 employees onto the market in the Bay Area it would probably sort out reasonably quickly. Even if we assume that we're looking at just 10,000 people, your assumption that the market will quickly absorb them without much pain is quite optimistic. Companies like Google and Facebook will certainly pick up some of the most skilled folks, but the vast majority of startup employees are not as desirable as many would like to believe, and they won't be able to replace their salaries. Put simply, there are 20-something [insert programming language du jour] developers with a few years of experience making $120,000/year plus benefits at unprofitable angel or venture-backed startups who are going to have to face the reality that their six-figure earning potential is completely dependent on the continued inflow of investment dollars to early-stage startups.

netcan 12y ago

That sounds possible. but new doesn't necessarily mean unstable. private equity is big because of the concentrated wealth of this decade.