7 ms·

"I am pretty paranoid about bubbles, but things still feel grounded in reason." Asking a VC to determine whether or not there is a VC bubble is like asking a m

by steven2012 12y ago

"I am pretty paranoid about bubbles, but things still feel grounded in reason." Asking a VC to determine whether or not there is a VC bubble is like asking a mortgage broker or real estate agent whether or not there was a housing bubble during 2006. They have a self-interest to believe that the good times will keep going. During the dot-com bubble and the housing bubble, the rationalizations that were being spouted by those in the midst of it were incredible. The same goes for now. There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. Any attempt to monetize those users will result in decreased users. The only thing keeping the valuations high are because people delude themselves into believing that Google or Facebook will pay billions for customers. If Google and/or Facebook declared they would be doing no more acquisitions, valuations would plummet immediately. The valuations given to companies with no real revenues, or profits to justify ridiculous valuations. But the rationalizations that get spouted to justify them are what is a big indicator of a bubble to me.

tptacek 12y ago
A "bubble" isn't defined as the absence of any irrational valuations.
- hawkice 12y ago
  Not sure if you're still in the edit window, but there is a triple negative thing going on that makes this statement both confusing and less interesting (if there were no irrational valuations, no one would call it a bubble).
- IgorPartola 12y ago
  Yes, but wouldn't you agree that the high profile valuations are over way over the top? Facebook, Instagram, Twitter, WhatsApp, etc. were/are valued extremely highly, I would say unjustifiably so. If there was a mechanism to go long against them and I had money to gamble with, I would. My go to example for this is Facebook's IPO. Their valuation was at the time at $50/user. Can they extract that much lifetime value out of every user they have? It seems rather high to me. I don't believe there is an industry-wide bubble going on. But it seems to me that if you hit the right keywords (social, sharing, advertising), you will be valued at the top of the range, not the bottom. Moreover, I believe these particular valuations will get market corrected sooner or later.
  - scottkduncan 12y ago
    Selling Facebook's stock short would indeed let you bet against the valuation of the Facebook platform, Instagram, and WhatsApp. Keep in mind that markets may be able to stay irrational longer than you can stay solvent.
    - IgorPartola 12y ago
      What I'm talking about is holding a long term investment against FB. I don't think they'll go bust tomorrow, but I am willing to bet some amount of money their shares will go down sometime between 2-5 years from now.
      - tormeh 12y ago
        There are exchange traded funds (ETFs) that short. You can probably find one for the technology sector. You'll probably have to short Intel along with Facebook, but that's the safest way to do it I can think of.
      - avn2109 12y ago
        It's almost as if the markets are intentionally structured such that it's easy to place a long-term bet that asset prices will rise, but relatively more difficult to bet the converse :0
        JimboOmega 12y ago
        You can always buy long-term put options. The premium is high, because of the time range.
        avn2109 12y ago
        That's exactly what I mean by "relatively more difficult." There is no premium if you buy and hold, in fact that's the baseline situation from which the premium is calculated. And buy-and-hold works for arbitrary timescales, while even long term puts come only in certain flavors. That starts to seem a lot like structurally built-in upward pressure on prices.
lumens 12y ago
>"There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money." More "did" than can. Something is worth what someone will pay. Why was FB willing to pay $19B? The answer is somewhere between what those users are worth to FB and the threat to FB's (very real) business that WhatsApp represented. This doesn't seem bubblish to me.
- Chinjut 12y ago
  The prices in every bubble are prices that someone _did_ pay. Possibly with foolish expectations; at any rate, at a level which was not sustained.
- IgorPartola 12y ago
  Another way to look at it is that FB is dying because simpler and more appealing competitors (Snapchat, Instagram, WhatsApp) are popping up that are threatening to grab FB's users' interest more. FB is faced with a quick death by losing a major share of its users over the course of 1-2 years, and the necessity to buy up the competition while it's still able to. I think that's actually a decent strategy: buy up these other apps and establish dominance in all the niche social networking corners. It'll last them maybe a decade I think. The problem is that these disruptive social networks don't make money. Acquiring them is just a way for FB to not lose money. So eventually FB's coffers dry out while more and more niche social networks pop up to steal its users. My understanding is that social networks are a generational thing. Even if FB was perfect in every way, no market maven teenager (for social networks the market mavens are teenagers) wants to hang out with their aunt. The next generation will stop watching Yo Gabba Gabba, grab their iPhone 9's and want to get on a social network that's separate from their parents. Because of this, I don't see a general purpose social network surviving for longer than 10-12 years and maintaining market dominance.
  - lbotos 12y ago
    What if, that social network was built by 5 people, college aged, and they decided to use FB login to save some time developing because they are trying to see if this thing is worth building. A very real probability. FB won't be the powerhouse that it is today, but it's deeply entrenched in our internet that there is value in the social data, not the "blue room" product they offer for free now. (I hate FB, but I get it.)
hendzen 12y ago
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” - Upton Sinclair
- 0xdeadbeefbabe 12y ago
  Not the hackers I know. I bet Upton was like that though [0]. [0] http://en.wikipedia.org/wiki/Upton_Sinclair http://en.wikipedia.org/wiki/Upton_Sinclair
varunsrin 12y ago
if im not mistaken, whatsapp already monetizes their users, charging $1 / year after the first year. with 700m active users, they potentially could be generating ~ 3.6% of their sale price in annual revenue.
- jacquesm 12y ago
  Generating revenues is not the same as making profit. If their infrastructure costs more than $1 / user to maintain on an annual basis they could very well still be losing money. To compare their price to something you'd have to compare it to dividends to the parent company or net profits for the division if it is integrated. Revenues don't mean a thing.
- mcintyre1994 12y ago
  Are you a user? If so, and you've been such for over a year - have you paid? I've never been charged, and to my knowledge nobody I know has either. I don't get if we should be getting charged but they just don't seem to bother. I get an annual notification saying I've been extended and no more information.
  - mkr-hn 12y ago
    They might base it on who's likely to pay. It might be better, in their minds, to keep you as a user than to potentially send you away.
  - lugg 12y ago
    They do price testing, if they believe there is no better option for you, and you will pay, they will charge you. They will not charge you if, for example, you're someone living in the USA. There is far too much free competition. For their non smartphone market (don't have numbers but its large), there is very little if any at all competition, and people in places like india gladly pay the $1 fee for a years access on their dumbphone.
    - catchmrbharath 12y ago
      > people in places like india gladly pay the $1 fee for a years access on their dumbphone. I am in India and I have never been charged for Whatsapp. Every year, whatsapp decides to add more free months. Also, there is significant competition in the messaging space in India, and Indians are not comfortable paying for anything other than their phones.
duaneb 12y ago
> Asking a VC to determine whether or not there is a VC bubble is like asking a mortgage broker or real estate agent whether or not there was a housing bubble during 2006. Except he's the person dictating the flow of money. It's more like a housing buyer saying there's good investments despite signs of a bubble.
- gruntled 12y ago
  But it isn't his money: VC funds raise money from other investors (aka limited partners). It's like asking a banker or hedge fund manager if there's a stock market bubble. They won't say yes because if investors pull their money out of equities, the banks and hedge funds are screwed.
krschultz 12y ago
The question about WhatsApp is not whether or not it was worth $19B, the question is whether or not it was worth 8% of Facebook. The bulk of that purchase was in FB shares, not cash. It just so happens Facebook is worth $235 billion dollars itself. I can see an argument where the worlds most used mobile messaging app is worth at least 8% as much as the world's most used social network.
- gruntled 12y ago
  Maybe they're both overvalued?
  - lmm 12y ago
    I thought that for a while, but the thing is that Facebook's actually pulling in revenue. Internet tells me they have a PE of 60, which is high (20 is normal for a mature company) but not order-of-magnitude insane. If Facebook is overvalued then advertising as a whole is, and that doesn't seem likely in this age of metrics and PPC competition. During the '00 bubble people said Yahoo's valuation was inflated because all the bubble companies spent their money on Yahoo ads. But for my money Yahoo has turned out to be worth its bubble valuation. Even if most of its value has come from a few clever investments, well, sounds like Facebook's doing the same thing.
    - gruntled 12y ago
      A PE of 60 is very high. A very rough rule is that the PEG (PE to Growth, where growth is earnings growth in percent) should be about 1.0. So a PE of 60 means the market is expecting very approximately 60% year on year growth.
      - technotony 12y ago
        That's probably what facebook is growing revenues, so maybe it's rational. this (a little out dated) chart shows that: https://marketrealist.imgix.net/uploads/2014/05/Companies-Ad-Revenue-Growth-Rates.png?w=660&fit=max&auto=format https://marketrealist.imgix.net/uploads/2014/05/Companies-Ad...
stevebot 12y ago
Yes, WhatsApp doesn't have any real revenues, but Sam doesn't mention them. YC alum's are not building WhatsApp. Uber has customers, real revenue (in the billions). So does AirBnb. So does SpaceX. So does Palantir. Just name dropping WhatsApp is pretty low brow. There are alot of people doing incredible things (Sam's point I might add) and focusing on the Bubble makes you miss out on companies generating real revenues.
- hnnewguy 12y ago
  >There are alot of people doing incredible things (Sam's point I might add) and focusing on the Bubble makes you miss out on companies generating real revenues. The 2000 tech bubble also came and went without every single company going bankrupt. So the fact that some companies are doing great things means squat when it comes determining whether there is a bubble or not.
defen 12y ago
> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. What if they're worried about an independent Whatsapp being a threat to FB's business model? As in, maybe Whatsapp isn't "worth" $19B (whatever that means) but it's a threat to destroy $50B of Facebook shareholder value? In that case it would be rational to buy them out to ensure that doesn't happen.
- reza_n 12y ago
  If Whatsapp puts $50B of Facebook value at risk by simply existing, that means that $50B had little value to begin with.
  - aetherson 12y ago
    I think that so far it suggests that that hypothetical $50B was worth $31B + whatever positive value WhatsApp has.
  - austenallred 12y ago
    Saying that a product used by 500 Million people (that's ~7% of the population of planet Earth) earned its value by "simply existing" is a pretty hand-wavy. That's incredibly difficult to do.
    - reza_n 12y ago
      I didnt really say that. I said that if it puts Facebook's value at risk, what exactly was that value? Why is it zero sum?
  - _broody 12y ago
    This. Facebook did really throw startup valuation out of whack starting with the Instagram acquisition and following up to Whatsapp. They appear to have no idea what they're doing with their money, they're in a rather vulnerable spot with their core business, and their demented frenzied spending seems to have infected everyone around them.
danieltillett 12y ago
I can see why Facebook would pay top dollar for a company that can monetise its user base, but why buy a company that will always lose money and can only take eyeballs away from your profitable platform?
therealwill 12y ago
The valuations are crazy because investors get paid out first. So if I invest 1 billion for 10% of company x it gets a 10 billion valuation but we only have to sell for 1 billion or more to break even. Banning preferred stock for startups will result in more accurate valuations.
kyleblarson 12y ago
> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. But isn't that the most important metric? I would argue there is also no metric by which a Coach purse is worth thousands of dollars but people seem to keep buying them.
angersock 12y ago
None of the six companies he mentions (Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are publicly traded. So, one reading of the tea leaves is that something like 100B (of non-existent money) is locked up out of the hands of the people who could benefit from trading it. This, at a time when wealth disparity is not far from the Gilded Age. There's a bubble, all right--just probably not the one the author is thinking of.
onewaystreet 12y ago
Whatsapp is a poor example to use to argue that there is a bubble. I haven't heard anyone try and justify that price beyond that Facebook was desperate and had the money. It's an outlier.
PublicEnemy111 12y ago
> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. Any attempt to monetize those users will result in decreased users. I hate to pick on you, but anyone who says WhatsApp is not worth $19 bil has not seen the Chinese version of WhatsApp, WeChat. WeChat is a combination of WhatsApp and Facebook. Everyone in China uses WeChat as messenger and as a pseudo-Facebook. The risk of WhatsApp becoming the WeChat for the rest of the world was a HUGE risk for Facebook. It has a very strong hold in the middle east and was gaining a ton of traction every where else. WeChat is a less-invasive version of Facebook that many people would gladly flock to.
mrdrozdov 12y ago
> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. Let's observe that WhatsApp besides just being a popular app, is a scalable and high performance messaging app, meaning to emphasize that you can't hit this level without some amazing engineering feats [1]. I think that we can also agree that a company that can build something of this sort might be valuable in itself without generating any sort of revenue. If it can make Facebook more productive/efficient over the coming years, it very well might be worth its weight in bitcoin. [1] http://highscalability.com/blog/2014/2/26/the-whatsapp-architecture-facebook-bought-for-19-billion.html http://highscalability.com/blog/2014/2/26/the-whatsapp-archi...
serve_yay 12y ago
> The same goes for now. There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. I think it is just too easy to say things like this. Number one, how can anyone know this? Number two, if not 19B then what? 18B? 5B? 500M? What? Was it overvalued by 2x or, like, 10x? If it was too much, then how much too much?
x0x0 12y ago
Yo got funded for $1.5m. Secret raised $35m, including $6m of founder cashouts (one bought a ferrari.) Is this a bubble? Dunno, but that's pretty frothy.
sytelus 12y ago
It's very likely a bubble when suddenly huge portion of people you knew are leaving their jobs to do startups en mass. Lot of these people hardly have anything significant on table and still get funded anyway. This is very similar to mortgage crisis where large number of people who don't qualify can easily get mortgages anyway. Accelerators have mushroomed all over places doing dozens of meetups and networking events powered by "luminaries" that no one knows because they are literally now running out of even Class-C startup celebrities. I believe it is well know that economic condition have been very unique last few years in that there is lot of investor money in market trying to find its home. Even if returns on VC is subpar many investors wants to give it a try because returns elsewhere sucked anyway and also there is a chance of winning the lottery. As the stock market and real estate continues to gain momentum and confidence, money would start start migrating back. My prediction is that in next 5 years, investors are going to realize that it was a good try, VC returns sucks compared to S&P/real estate and they start pulling out. This will first cause shutdown of recently mushroomed accelerators/startup schools. That would then further spook VCs causing chain reaction eventually leading to meltdown. I think more prudent VCs such as Y and Sequoia would continue as usual but many other will simply shutdown because of lack of funds. This is not to contradict Sam's predictions. Lot of the companies in his list can go big and easily double the value but in 5 years that would have much less effect on how much investment money VCs aquire.
golergka 12y ago
> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. The only good metric to determine how much something is worth is how much someone is ready to pay for it.

tptacek 12y ago

A "bubble" isn't defined as the absence of any irrational valuations.

hawkice 12y ago
Not sure if you're still in the edit window, but there is a triple negative thing going on that makes this statement both confusing and less interesting (if there were no irrational valuations, no one would call it a bubble).
IgorPartola 12y ago
Yes, but wouldn't you agree that the high profile valuations are over way over the top? Facebook, Instagram, Twitter, WhatsApp, etc. were/are valued extremely highly, I would say unjustifiably so. If there was a mechanism to go long against them and I had money to gamble with, I would. My go to example for this is Facebook's IPO. Their valuation was at the time at $50/user. Can they extract that much lifetime value out of every user they have? It seems rather high to me. I don't believe there is an industry-wide bubble going on. But it seems to me that if you hit the right keywords (social, sharing, advertising), you will be valued at the top of the range, not the bottom. Moreover, I believe these particular valuations will get market corrected sooner or later.
- scottkduncan 12y ago
  Selling Facebook's stock short would indeed let you bet against the valuation of the Facebook platform, Instagram, and WhatsApp. Keep in mind that markets may be able to stay irrational longer than you can stay solvent.
  - IgorPartola 12y ago
    What I'm talking about is holding a long term investment against FB. I don't think they'll go bust tomorrow, but I am willing to bet some amount of money their shares will go down sometime between 2-5 years from now.
    - tormeh 12y ago
      There are exchange traded funds (ETFs) that short. You can probably find one for the technology sector. You'll probably have to short Intel along with Facebook, but that's the safest way to do it I can think of.
    - avn2109 12y ago
      It's almost as if the markets are intentionally structured such that it's easy to place a long-term bet that asset prices will rise, but relatively more difficult to bet the converse :0
      - JimboOmega 12y ago
        You can always buy long-term put options. The premium is high, because of the time range.
        avn2109 12y ago
        That's exactly what I mean by "relatively more difficult." There is no premium if you buy and hold, in fact that's the baseline situation from which the premium is calculated. And buy-and-hold works for arbitrary timescales, while even long term puts come only in certain flavors. That starts to seem a lot like structurally built-in upward pressure on prices.

lumens 12y ago

>"There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money." More "did" than can. Something is worth what someone will pay. Why was FB willing to pay $19B? The answer is somewhere between what those users are worth to FB and the threat to FB's (very real) business that WhatsApp represented. This doesn't seem bubblish to me.

Chinjut 12y ago
The prices in every bubble are prices that someone _did_ pay. Possibly with foolish expectations; at any rate, at a level which was not sustained.
IgorPartola 12y ago
Another way to look at it is that FB is dying because simpler and more appealing competitors (Snapchat, Instagram, WhatsApp) are popping up that are threatening to grab FB's users' interest more. FB is faced with a quick death by losing a major share of its users over the course of 1-2 years, and the necessity to buy up the competition while it's still able to. I think that's actually a decent strategy: buy up these other apps and establish dominance in all the niche social networking corners. It'll last them maybe a decade I think. The problem is that these disruptive social networks don't make money. Acquiring them is just a way for FB to not lose money. So eventually FB's coffers dry out while more and more niche social networks pop up to steal its users. My understanding is that social networks are a generational thing. Even if FB was perfect in every way, no market maven teenager (for social networks the market mavens are teenagers) wants to hang out with their aunt. The next generation will stop watching Yo Gabba Gabba, grab their iPhone 9's and want to get on a social network that's separate from their parents. Because of this, I don't see a general purpose social network surviving for longer than 10-12 years and maintaining market dominance.
- lbotos 12y ago
  What if, that social network was built by 5 people, college aged, and they decided to use FB login to save some time developing because they are trying to see if this thing is worth building. A very real probability. FB won't be the powerhouse that it is today, but it's deeply entrenched in our internet that there is value in the social data, not the "blue room" product they offer for free now. (I hate FB, but I get it.)

hendzen 12y ago

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” - Upton Sinclair

0xdeadbeefbabe 12y ago
Not the hackers I know. I bet Upton was like that though [0]. [0] http://en.wikipedia.org/wiki/Upton_Sinclair http://en.wikipedia.org/wiki/Upton_Sinclair

varunsrin 12y ago

if im not mistaken, whatsapp already monetizes their users, charging $1 / year after the first year. with 700m active users, they potentially could be generating ~ 3.6% of their sale price in annual revenue.

jacquesm 12y ago
Generating revenues is not the same as making profit. If their infrastructure costs more than $1 / user to maintain on an annual basis they could very well still be losing money. To compare their price to something you'd have to compare it to dividends to the parent company or net profits for the division if it is integrated. Revenues don't mean a thing.
mcintyre1994 12y ago
Are you a user? If so, and you've been such for over a year - have you paid? I've never been charged, and to my knowledge nobody I know has either. I don't get if we should be getting charged but they just don't seem to bother. I get an annual notification saying I've been extended and no more information.
- mkr-hn 12y ago
  They might base it on who's likely to pay. It might be better, in their minds, to keep you as a user than to potentially send you away.
- lugg 12y ago
  They do price testing, if they believe there is no better option for you, and you will pay, they will charge you. They will not charge you if, for example, you're someone living in the USA. There is far too much free competition. For their non smartphone market (don't have numbers but its large), there is very little if any at all competition, and people in places like india gladly pay the $1 fee for a years access on their dumbphone.
  - catchmrbharath 12y ago
    > people in places like india gladly pay the $1 fee for a years access on their dumbphone. I am in India and I have never been charged for Whatsapp. Every year, whatsapp decides to add more free months. Also, there is significant competition in the messaging space in India, and Indians are not comfortable paying for anything other than their phones.

duaneb 12y ago

> Asking a VC to determine whether or not there is a VC bubble is like asking a mortgage broker or real estate agent whether or not there was a housing bubble during 2006. Except he's the person dictating the flow of money. It's more like a housing buyer saying there's good investments despite signs of a bubble.

gruntled 12y ago
But it isn't his money: VC funds raise money from other investors (aka limited partners). It's like asking a banker or hedge fund manager if there's a stock market bubble. They won't say yes because if investors pull their money out of equities, the banks and hedge funds are screwed.

krschultz 12y ago

The question about WhatsApp is not whether or not it was worth $19B, the question is whether or not it was worth 8% of Facebook. The bulk of that purchase was in FB shares, not cash. It just so happens Facebook is worth $235 billion dollars itself. I can see an argument where the worlds most used mobile messaging app is worth at least 8% as much as the world's most used social network.

gruntled 12y ago
Maybe they're both overvalued?
- lmm 12y ago
  I thought that for a while, but the thing is that Facebook's actually pulling in revenue. Internet tells me they have a PE of 60, which is high (20 is normal for a mature company) but not order-of-magnitude insane. If Facebook is overvalued then advertising as a whole is, and that doesn't seem likely in this age of metrics and PPC competition. During the '00 bubble people said Yahoo's valuation was inflated because all the bubble companies spent their money on Yahoo ads. But for my money Yahoo has turned out to be worth its bubble valuation. Even if most of its value has come from a few clever investments, well, sounds like Facebook's doing the same thing.
  - gruntled 12y ago
    A PE of 60 is very high. A very rough rule is that the PEG (PE to Growth, where growth is earnings growth in percent) should be about 1.0. So a PE of 60 means the market is expecting very approximately 60% year on year growth.
    - technotony 12y ago
      That's probably what facebook is growing revenues, so maybe it's rational. this (a little out dated) chart shows that: https://marketrealist.imgix.net/uploads/2014/05/Companies-Ad-Revenue-Growth-Rates.png?w=660&fit=max&auto=format https://marketrealist.imgix.net/uploads/2014/05/Companies-Ad...

stevebot 12y ago

Yes, WhatsApp doesn't have any real revenues, but Sam doesn't mention them. YC alum's are not building WhatsApp. Uber has customers, real revenue (in the billions). So does AirBnb. So does SpaceX. So does Palantir. Just name dropping WhatsApp is pretty low brow. There are alot of people doing incredible things (Sam's point I might add) and focusing on the Bubble makes you miss out on companies generating real revenues.

hnnewguy 12y ago
>There are alot of people doing incredible things (Sam's point I might add) and focusing on the Bubble makes you miss out on companies generating real revenues. The 2000 tech bubble also came and went without every single company going bankrupt. So the fact that some companies are doing great things means squat when it comes determining whether there is a bubble or not.

defen 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. What if they're worried about an independent Whatsapp being a threat to FB's business model? As in, maybe Whatsapp isn't "worth" $19B (whatever that means) but it's a threat to destroy $50B of Facebook shareholder value? In that case it would be rational to buy them out to ensure that doesn't happen.

reza_n 12y ago
If Whatsapp puts $50B of Facebook value at risk by simply existing, that means that $50B had little value to begin with.
- aetherson 12y ago
  I think that so far it suggests that that hypothetical $50B was worth $31B + whatever positive value WhatsApp has.
- austenallred 12y ago
  Saying that a product used by 500 Million people (that's ~7% of the population of planet Earth) earned its value by "simply existing" is a pretty hand-wavy. That's incredibly difficult to do.
  - reza_n 12y ago
    I didnt really say that. I said that if it puts Facebook's value at risk, what exactly was that value? Why is it zero sum?
- _broody 12y ago
  This. Facebook did really throw startup valuation out of whack starting with the Instagram acquisition and following up to Whatsapp. They appear to have no idea what they're doing with their money, they're in a rather vulnerable spot with their core business, and their demented frenzied spending seems to have infected everyone around them.

danieltillett 12y ago

I can see why Facebook would pay top dollar for a company that can monetise its user base, but why buy a company that will always lose money and can only take eyeballs away from your profitable platform?

therealwill 12y ago

The valuations are crazy because investors get paid out first. So if I invest 1 billion for 10% of company x it gets a 10 billion valuation but we only have to sell for 1 billion or more to break even. Banning preferred stock for startups will result in more accurate valuations.

kyleblarson 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. But isn't that the most important metric? I would argue there is also no metric by which a Coach purse is worth thousands of dollars but people seem to keep buying them.

angersock 12y ago

None of the six companies he mentions (Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are publicly traded. So, one reading of the tea leaves is that something like 100B (of non-existent money) is locked up out of the hands of the people who could benefit from trading it. This, at a time when wealth disparity is not far from the Gilded Age. There's a bubble, all right--just probably not the one the author is thinking of.

onewaystreet 12y ago

Whatsapp is a poor example to use to argue that there is a bubble. I haven't heard anyone try and justify that price beyond that Facebook was desperate and had the money. It's an outlier.

PublicEnemy111 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. Any attempt to monetize those users will result in decreased users. I hate to pick on you, but anyone who says WhatsApp is not worth $19 bil has not seen the Chinese version of WhatsApp, WeChat. WeChat is a combination of WhatsApp and Facebook. Everyone in China uses WeChat as messenger and as a pseudo-Facebook. The risk of WhatsApp becoming the WeChat for the rest of the world was a HUGE risk for Facebook. It has a very strong hold in the middle east and was gaining a ton of traction every where else. WeChat is a less-invasive version of Facebook that many people would gladly flock to.

mrdrozdov 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. Let's observe that WhatsApp besides just being a popular app, is a scalable and high performance messaging app, meaning to emphasize that you can't hit this level without some amazing engineering feats [1]. I think that we can also agree that a company that can build something of this sort might be valuable in itself without generating any sort of revenue. If it can make Facebook more productive/efficient over the coming years, it very well might be worth its weight in bitcoin. [1] http://highscalability.com/blog/2014/2/26/the-whatsapp-architecture-facebook-bought-for-19-billion.html http://highscalability.com/blog/2014/2/26/the-whatsapp-archi...

serve_yay 12y ago

> The same goes for now. There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. I think it is just too easy to say things like this. Number one, how can anyone know this? Number two, if not 19B then what? 18B? 5B? 500M? What? Was it overvalued by 2x or, like, 10x? If it was too much, then how much too much?

x0x0 12y ago

Yo got funded for $1.5m. Secret raised $35m, including $6m of founder cashouts (one bought a ferrari.) Is this a bubble? Dunno, but that's pretty frothy.

sytelus 12y ago

It's very likely a bubble when suddenly huge portion of people you knew are leaving their jobs to do startups en mass. Lot of these people hardly have anything significant on table and still get funded anyway. This is very similar to mortgage crisis where large number of people who don't qualify can easily get mortgages anyway. Accelerators have mushroomed all over places doing dozens of meetups and networking events powered by "luminaries" that no one knows because they are literally now running out of even Class-C startup celebrities. I believe it is well know that economic condition have been very unique last few years in that there is lot of investor money in market trying to find its home. Even if returns on VC is subpar many investors wants to give it a try because returns elsewhere sucked anyway and also there is a chance of winning the lottery. As the stock market and real estate continues to gain momentum and confidence, money would start start migrating back. My prediction is that in next 5 years, investors are going to realize that it was a good try, VC returns sucks compared to S&P/real estate and they start pulling out. This will first cause shutdown of recently mushroomed accelerators/startup schools. That would then further spook VCs causing chain reaction eventually leading to meltdown. I think more prudent VCs such as Y and Sequoia would continue as usual but many other will simply shutdown because of lack of funds. This is not to contradict Sam's predictions. Lot of the companies in his list can go big and easily double the value but in 5 years that would have much less effect on how much investment money VCs aquire.

golergka 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. The only good metric to determine how much something is worth is how much someone is ready to pay for it.