Money Is Pouring into Tech Like It’s 1999, and That's Not Good

Money Is Pouring into Tech Like It’s 1999, and That's Not Good
wired.com

That's my 2 cent theory, I'd love to hear some discussion on it.

Overall, I don't really find this story convincing for a few of reasons, though I suppose there is plenty of room for disagreement. (1)T he first boom actually did get a lot right. The PC-internet revolutions was intense and did create a lot of new value. The mistake was treating it like a land grab where all major players would be established by the year 2000. (2) Scale does matter when we are talking about bubbles.Smaller means safer. (3) There is real revenue being generated by Google, Facebook and every reason to think it will be generated by Uber too. (4) 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. (5) War chests: The big boys and many of the up-and-comers have nice big war chests. They are obviously concerned about equity, but Facebook would be very hard to kill with a sharp decrease in stock price. Options might need to give way to bonuses, but the Facebook is no longer in the business of selling equity. They have plenty of cash. This goes doubly for Google, MSFT, Apple & a surprising number of no-rush-to-IPO mega startups like Uber , Airbnb, Dropbox Snapchat, etc. Their continued existence is not dependent on the market for tech stock.

Bubbles are some sort of unstable financial complex that can be brought down as soon as the equilibrium is broken. In 99' the money was ultimately coming from IPOs and public markets. When that well dried, everything went bottom up.

The recent financial crash was bullet on financial instrument tautologies, a system that created correlated risk. It could only continue to exist so long as everyone could maintain that the risk was much smaller than it was.

Think of the companies in question. Most could continue to survive if investors hid in a hole for two years, that's robust. 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.

On the other hand, tech is one of those fairy land sectors that is not priced on any reasonable metric (profits), but instead on hopes and dreams. Until all tech becomes priced based on profits (like Apple, IBM, Google, etc) it will continue to see large investments seeking outlandish returns. Right now it's an area where getting market share from others can happen quickly.

It's pretty hard to grab market share from a utility (usually regulated monopoly) or a rent seeker (you need to buy the asset to rent it out yourself). Same goes for other sectors, only so many cars can be bought every year for example.

Snagging eyeballs can happen quickly, can be fleeting (myspace) or more long-lasting (facebook). Hence the WhatsApp stuff (OMG, so many eyeballs there, just like facebook!!!).