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

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

#41

Post by ChuckMcM »

7Figures2Commas wrote: post #24
netcan wrote: post #7

An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector. 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…

> 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 multipl…

"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 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-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.

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

#42

Post by 7Figures2Commas »

nmjohn wrote: post #37
7Figures2Commas wrote: post #25

Earlier quoted context omitted.

> This time the money is largely coming from private equity and there's not a lot of splashy IPOs happening. This is an amusing statement in light of the fact that the largest IPO in history (Alibaba) took place last week.

I'll paraphrase a comment I wrote on reddit about this yesterday. Alibaba has a PE ratio one tenth of amazon - and is already a profitable company. This is the exact opposite of what a bubble is. This is not at all like the kind of IPOs leading to the 2000 crash.

I didn't comment on Alibaba's financials. I simply responded to the statement that "there's not a lot of splashy IPOs happening," which I found somewhat amusing in light of the fact that the arguably "splashiest" IPO just took place.

That said, Alibaba's profitability and PE ratio compared to Amazon is meaningless in the context of a bubble discussion. A bubble does not merely consist of unprofitable companies becoming ridiculously valued; it consists of profitable companies becoming more highly valued than their fundamentals can support.

If Amazon's stock price fell by 25%, and Alibaba's did the same, as an Alibaba shareholder would you take comfort in the fact that Alibaba still has a PE ratio one tenth Amazon's? Of course not.

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

#43

Post by netcan »

jboy55 wrote: post #38
netcan wrote: post #7

An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector. 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…

Well, one thing about 1999 is where the actual revenue for the big players was coming from. That is, when Yahoo reporting their income what % just came from startups spending VC money without a business plan? The whole dot-com thing in 99 was pretty much a pyramid scheme, where the first players showed there was promise, then when everyone rushed in with their VC money to spend, they looked solid. When the leaf nodes…

There is some of that. but for the most part (1) advertising revenues come from across industries, (2) startup revenues as a whole are fairly diverse coming from advertising, saas, transaction fees on rooms or rides and (3) most importantly I don't think Dropbox's value will hit critical levels because twitter's business model fails. its all a lot less speculative. multiples are high, but not the imaginary. most of the mature 2.0 startups are real businesses with a company value derived from revenue and profit.

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

#44

Post by luma »

7Figures2Commas wrote: post #25
luma wrote: post #20

Earlier quoted context omitted.

I think point (4) is the key here. The original bubble happened on the public exchanges with public money. The "IPO" was the big deal that everyone wanted to get in on after Netscape, et al valuations went crazy. Institutional investors were investing people's retirement accounts into companies they didn't understand. When that finally fell over, the impact was felt across the economy because it involved everybody's…

> This time the money is largely coming from private equity and there's not a lot of splashy IPOs happening. This is an amusing statement in light of the fact that the largest IPO in history (Alibaba) took place last week.

This would in fact be amusing if "a lot" == "1".

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

#45

Post by netcan »

7Figures2Commas wrote: post #24
netcan wrote: post #7

An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector. 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…

> 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 multipl…

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

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

#46

Post by dragonwriter »

7Figures2Commas wrote: post #25
luma wrote: post #20

Earlier quoted context omitted.

I think point (4) is the key here. The original bubble happened on the public exchanges with public money. The "IPO" was the big deal that everyone wanted to get in on after Netscape, et al valuations went crazy. Institutional investors were investing people's retirement accounts into companies they didn't understand. When that finally fell over, the impact was felt across the economy because it involved everybody's…

> This time the money is largely coming from private equity and there's not a lot of splashy IPOs happening. This is an amusing statement in light of the fact that the largest IPO in history (Alibaba) took place last week.

Not sure why its amusing; the presence of fewer splashy IPOs means less competing alternatives for the money of those investors seeking splashy IPOs to sink money into.

Insofar as "splashy" is mostly a factor of media attention in the runup, there being fewer splashy IPOs might itself contribute directly to the splashy IPOs that do exist being bigger (there's other contributors, too -- if the media isn't as prone to drive attention to every tech IPO, it means the IPOs that are splashy are likely splashy because of some fundamental newsworthy feature, which often includes things like strength in the fundamentals or the amount of money sought to be raised, that is, IPOs have to be set-up to be bigger to be splashy.)

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

#47

Post by 7Figures2Commas »

marcosdumay wrote: post #34
7Figures2Commas wrote: post #25

Earlier quoted context omitted.

> This time the money is largely coming from private equity and there's not a lot of splashy IPOs happening. This is an amusing statement in light of the fact that the largest IPO in history (Alibaba) took place last week.

Compare to the 99's. One couldn't keep track of all the IPOs back then. Anyway, the VC bubble will not pop alone. It'll take stocks with it (or the other way around), and people will suffer worldwide again.

> Compare to the 99's. One couldn't keep track of all the IPOs back then.

There have been close to 200 IPOs this year. How many people here can, by memory alone, name more than 10?

I'm not at all arguing that the IPO market of 2014 is the IPO market of 2000 reincarnated (it absolutely isn't), but anecdotal analyses that boil down to "it was crazier in 2000!" aren't very meaningful.

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

#48

Post by 7Figures2Commas »

ChuckMcM wrote: post #41
7Figures2Commas wrote: post #24

Earlier quoted context omitted.

> 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 multipl…

"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…

> 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.

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

#49

Post by orbifold »

avn2109 wrote: post #39
7Figures2Commas wrote: post #24

Earlier quoted context omitted.

> 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 multipl…

>> "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.

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.

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

#50

Post by bowlofpetunias »

People seem to have completely forgotten how completely nonsensical (and often completely clueless about tech, the internet and business) tech start-ups were in 1999 compared to now.

The valuations and burn rate may be too high and up for a big correction, but most of the start-ups these days at least have some logic behind it by which they may be seen as potential hits. 1999 was largely mass hysteria with no foundation in reality whatsoever.

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