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

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

#61

Post by jonnathanson »

imjk wrote: post #21
karmacondon wrote: post #9

This is why most angels have to be accredited investors, meaning that they need to have $1MM in assets. Millionaires investing in new ideas aren't exactly naive widows and orphans (though they could be). With public stocks there is indeed high liquidity, but there was also strikingly high volatility during the tech bubble. It's good to be able to sell your shares, but less so if the price can drop 80% in a day. That'…

Well he explicitly mentions equity crowd funding which allows people to bypass those rules. Also, from personal experience as an angel investor, there isn't really a great authority out there enforcing accredited investor requirements. All the times I've invested in private companies, I simply had to sign a one-page document self-proclaiming myself as an accredited investor.

The way the system works, the burden/penalty is on the company, not you, to verify your accreditation status. If you lie on your self-accreditation form, that's the company's problem for selling private securities to unaccredited individuals (and a huge problem it may well be). This is actually one of the big pain points that platforms like AngelList, with their syndicate deals and their self-reporting requirements, solve for startups. AL standardizes the self-accreditation process, and puts up stringent documentation requirements, that make it very hard for a person to lie his way through. Companies get peace of mind that AL investors have the net worth they say they do. FundersClub also does a pretty good job of this, in my experience.

As for the more fast and loose, "crowdfundy" sites? I have no personal experience there, so no idea. I don't see the upside in investing through them.

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

#62

Post by dogma1138 »

sixQuarks wrote: post #54
dogma1138 wrote: post #50

Earlier quoted context omitted.

VC's are not risking their money they are risking yours. VC's get money from your insurer, pension provider, 401K and similar saving options. While you might invest and gamble with your own money, VC's are literally gambling with everyone's future. And these days the regulations limiting insurance companies and private pension providers in investing their money in a VC or other types of risky capital are looser than…

Pension funds and similar investment vehicles put a tiny percentage of their money into VC funds. Those losses shouldn't affect the individuals much.

http://www.bloomberg.com/bw/articles/2014-09-23/are-public-p...

Insurance companies and pension funds make up 50% and upwards of an average VC. The rest of the money also comes from sources which directly affect you such as local government, banks, and other "public" institutions. "Rich individuals" on the other hand do make up only a fraction of the VC source funding with less than 2% on average.

And while it's true that it doesn't represent the portion of the money a pension fund has invested in a specific VC. If you look at the breakout of your pension fund you'll find just how ridiculously high that percentage actually is. And BTW an insurance company or a pension fund that gets hit with even 5-10% loss means that tons of people lose coverage, premiums sky rocket and you end up losing more money that you could invest yourself otherwise.

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

#63

Post by jsprogrammer »

austenallred wrote: post #37

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…

>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.

And then participates in a television show where 'shark investors' ridicule others for their 'insanely high valuations', which are sometimes as small as 20x one year's revenue.

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

#64

Post by xasos »

austenallred wrote: post #37

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…

I love how he's only who he is today because he was lucky and picked the right time to sell his business. Same business would not be worth as much today.

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

#65

Post by encoderer »

eroo wrote: post #47
austenallred wrote: post #37

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…

He isn't arguing firms are overvalued by a greater degree now relative to 1999. He's arguing that investments in private firms, which are far more popular now, are worse for small players due to their lack of liquidity. If things start going south in a private investment, a share holder may not be able to exit even at a large loss.

If things start going south in a public investment, a shareholder may not be able to exit that, either. The truth is, it's all about liquidity, and liquidity dries-up on the way down.

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

#66

Post by jeffreyrogers »

maxerickson wrote: post #38
jeffreyrogers wrote: post #13

Earlier quoted context omitted.

You're cherry picking the quote: > In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story. In the tech bubble it was Broadcast.com, AOL, Netscape, etc. Today its, Uber, Twitter, Facebook, etc. In context, what he's saying makes a lot of sense.

Broadcast.com is only sort of comparable to WhatsApp (in terms of roles in a bubble). And WhatsApp was all set to be the primary social network for a billion people, not yet another video site.

That's not the point though. The point Mark Cuban was making is that now people pitching VC firms compare their company to Uber or whatever, versus previously they were comparing it to AOL or Broadcast.com

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

#67

Post by adventured »

xasos wrote: post #64
austenallred wrote: post #37

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…

I love how he's only who he is today because he was lucky and picked the right time to sell his business. Same business would not be worth as much today.

To be more specific, Broadcast.com would have likely went bankrupt very rapidly during the period of the dotcom bust (it would have been sold off for a small fraction of the Yahoo acquisition price). Financing would have disappeared, and Broadcast.com was losing as much money annually as it was doing in revenue, that bleed would have gotten much worse as advertisers disappeared.

Yahoo ended up shuttering the business not long after the purchase. They couldn't make it work.

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

#68

Post by PublicEnemy111 »

CyberDildonics wrote: post #59
austenallred wrote: post #37

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…

Mark Cuban is the lottery winner who thinks he's Jim Clark.

There were a lot of lottery winners who lost everything in the first tech bubble. Mark sold his company for billions then locked in his fortune using put and call options. Pretty smart if you ask me. Though, I do not agree with this article

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

#69

Post by fsk »

DownvoteMeToWin wrote: post #44

I bet this is about liquidity. ( reads article ) Yep, it's about liquidity. I bet the HN comments don't mention liquidity categories. ( reads comments ) Nope, not a single one. How did I know!!!!??!!11 He's right that sub 25M is dead. You're either the next Uber or you're not getting anything. And if that's the case, then money will be on the sidelines waiting for the next big thing, not the next incremental thing. T…

His point is that Sarbanes-Oxley killed the possibility for small-medium companies to go public (~1B market cap). With less than $1B market cap, the overhead costs of Sarbanes-Oxley compliance are a huge % of revenue.

The only way the shareholders can cash out is via a sale to a larger (idiot?) buyer (Facebook/Google/Microsoft/Yahoo).

Even worse, a lot of these companies don't really have a clear path to revenue or profitability (like Tinder).

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

#70

Post by DownvoteMeToWin »

fsk wrote: post #69
DownvoteMeToWin wrote: post #44

I bet this is about liquidity. ( reads article ) Yep, it's about liquidity. I bet the HN comments don't mention liquidity categories. ( reads comments ) Nope, not a single one. How did I know!!!!??!!11 He's right that sub 25M is dead. You're either the next Uber or you're not getting anything. And if that's the case, then money will be on the sidelines waiting for the next big thing, not the next incremental thing. T…

His point is that Sarbanes-Oxley killed the possibility for small-medium companies to go public (~1B market cap). With less than $1B market cap, the overhead costs of Sarbanes-Oxley compliance are a huge % of revenue. The only way the shareholders can cash out is via a sale to a larger (idiot?) buyer (Facebook/Google/Microsoft/Yahoo). Even worse, a lot of these companies don't really have a clear path to revenue or p…

Then you look at the cash reserves of the titans (Apple comes to mind) and you see it's not in circulation, which proves there are large sums of liquidity on the sidelines not investing.
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