Why This Tech Bubble is Worse Than the Tech Bubble of 2000

So Cuban is essentially complaining that the market for small time ipos is dead. Maybe he is right, I do not know.

But I am very much against any attempts to lessen the reporting requirements for IPOs. What people complaining about the SEC have to understand is that if the public lose trust in the markets, we will have absolutely no markets whatsoever. There will be no market for small caps or for big caps of for IPOs of any sizes. And we came perilously close to that with some of the big accounting scandals.

The most important thing about the markets is that the public trusts them. If that creates accounting requirements that are too onerous for some small time ipos, so be it. Because if there is no trust, there are no markets and there won't be any small time ipos anyways.

The current heat in the startup market is largely due to the Fed pumping money into the economy by setting interest rates so low that large institutions can borrow nearly for free.

While most of that money is going into less risky things like firms who are expanding rather than contracting thanks to the supply of capital, lax regulatory landscape, etc.

The extra employment and associated consumer spending, along with the optimism obtained from a large number of people feeling like "owners" thanks to crowdfunding programs, helps create a culture of ideas and optimism.

And of course if you're rich enough you want to have some money in some highly leveraged, risky bets, and so VCs and LPs are refining that market substantially, helping money flow into it efficiently. Mattermark is an example of serious analytics to help with deal flow that is growing in number of deals far out of proportion to the total dollar amount.

Similarly, "financification" is happening in areas of real estate that have previously been slower markets driven by insider knowledge and minimal transparency.

Financification is actually the broader trend. Companies like Mattermark realize that and are applying it to what they know (startups) but it's also being done at Farmlogs, Reonomy, and many, many others.

Such businesses are pro-cyclical in that they lose value if deal flow slows, not to mention the inevitable liquidity assumptions that underly all such predictive analytics.

I think that the financial instruments needed to truly make these things work medium term are obscure or even banned, so it will be interesting to see how that plays out.

Yep, Cuban glosses over that obvious detail when it comes to median net worth individuals ($50k - $100k).

Like when ordinary people invest into the stock market, and buy a company like Adept Technologies (ADEP) that goes from $21 to $6 in ten months (ADEP has been publicly traded for 20 years).

Or buy into a company like Dendreon (DNDN) which goes from $40 / share and a ~$10 billion market cap, to literally worthless in 36 months.

A person with $1,000 can easily lose all of it in the public markets. There's nothing stopping them from drowning in their own ignorance.

So Cuban started (what became) Broadcast.com, ramped it up to $13.5 Million revenue per quarter [1], and sold it to Yahoo for $5.7 billion (in stock, but we'll disregard that fact for now). On track to do $54 million in a year, means he sold for 1,000x one year's revenue.

15 years later, Facebook brings in $3.2 Billion in revenue and has a market cap of ~$41 Billion, or about 12.8 times one year's revenue. [2]

And we won't mention Google, despite the fact that they're the most obvious tech company to compare the likes of AOL to, because they make more money than God, and it would harm the argument. Uber, Twitter, etc. may be overvalued, but they bring in cold hard cash, and they're barely getting started.

Things are frothy right now, for sure; there are some really high rounds being raised that are justified by portfolio theory, and some no-product seed rounds at really high valuations. There will be some major catastrophes, and people will lose a lot of money.

But I have no idea how Cuban could possibly make the argument that it's worse than 1999.

[1] http://en.wikipedia.org/wiki/Mark_Cuban#Business_career [2] http://ycharts.com/companies/FB/market_cap

Yes, it is an expression usually used to refer to relatively poor innocent people. This does not apply here, poor people are not getting into the private funding rounds of top tier start-ups. So even if you use the expression figuratively, he is still making up a victim.