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So, honest question, isn't public investment in shaky tech companies exactly what led to the early dotcom bubble? Except now that it's before they even IPO, is

by delecti 12y ago

So, honest question, isn't public investment in shaky tech companies exactly what led to the early dotcom bubble? Except now that it's before they even IPO, isn't it even more risky? Genuinely curious, I was only 13 in 2000, so I didn't exactly know what was going on.

gbelote 12y ago
That certainly was part of the dotcom bubble, but not the cause of it. In addition to a very frothy public market there was an obscene amount of private money getting invested in companies with poor fundamentals. sama wrote a great article recently about bubbles. There are a few things from the JOBS Act that protects against terrible things. People can't invest more than a certain amount in startups overall - your quota is based on your income or net worth and is either 5% or 10%, depending. Additionally, these are long term investments - you can't easily flip investments and I think that'll play a big part in people's psychology. You can't buy a share of some hip photo startup (for example) and sell it to someone else in 6 months at a higher price. In many cases you're going to be holding your investments until the company exists. There are exceptions to this, but I think practically we won't see secondary markets for a long time. Another thing (this is more specific to Title III - the crowdfunding part of the JOBS Act that we're still waiting on) is that companies have to publicly set a goal and meet it through a registered platform. So a shaky startup can't find 10 suckers to give them $1000, they have to set a real goal (e.g. $50k) and convince a crowd of people to give them money. It still will happen, but I think fraud will be much less common than well intentioned startup failure. The best part (IMO) is that the economics of investing will be dramatically different, so people can invest $100. Startups are super risky, but with $5,000 you can invest in 50 businesses and spread the risk. Because they're startups many will fail, but it's less likely to get conned by 50 founders.
arfliw 12y ago
>isn't public investment in shaky tech companies exactly what led to the early dotcom bubble? Actually...yes. The criticism of 'noobs will get fleeced' I think is silly. This one however, is valid. This could lead to dumbMoney sending valuations of dumbCompanies through the roof, also sending valuations of the good companies higher -- leading to a pretty nasty bubble.

by delecti 12y ago

gbelote 12y ago

That certainly was part of the dotcom bubble, but not the cause of it. In addition to a very frothy public market there was an obscene amount of private money getting invested in companies with poor fundamentals. sama wrote a great article recently about bubbles. There are a few things from the JOBS Act that protects against terrible things. People can't invest more than a certain amount in startups overall - your quota is based on your income or net worth and is either 5% or 10%, depending. Additionally, these are long term investments - you can't easily flip investments and I think that'll play a big part in people's psychology. You can't buy a share of some hip photo startup (for example) and sell it to someone else in 6 months at a higher price. In many cases you're going to be holding your investments until the company exists. There are exceptions to this, but I think practically we won't see secondary markets for a long time. Another thing (this is more specific to Title III - the crowdfunding part of the JOBS Act that we're still waiting on) is that companies have to publicly set a goal and meet it through a registered platform. So a shaky startup can't find 10 suckers to give them $1000, they have to set a real goal (e.g. $50k) and convince a crowd of people to give them money. It still will happen, but I think fraud will be much less common than well intentioned startup failure. The best part (IMO) is that the economics of investing will be dramatically different, so people can invest $100. Startups are super risky, but with $5,000 you can invest in 50 businesses and spread the risk. Because they're startups many will fail, but it's less likely to get conned by 50 founders.

arfliw 12y ago

>isn't public investment in shaky tech companies exactly what led to the early dotcom bubble? Actually...yes. The criticism of 'noobs will get fleeced' I think is silly. This one however, is valid. This could lead to dumbMoney sending valuations of dumbCompanies through the roof, also sending valuations of the good companies higher -- leading to a pretty nasty bubble.