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We are in a Bubble

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Re: We are in a Bubble

#81

Post by R_Symtex_II »

neilk wrote: post #72
R_Symtex_II wrote: post #64

Earlier quoted context omitted.

I think the term you're looking for is Ponzi scheme. Much like Bernie Made-off... err Madoff operated. Or perhaps more recently: Groupon. A classic pump and dump, take a look at the charts. Your 'train analogy' is merely painting a glib picture of what is clearly insider trading by the likes of Goldman Sachs in a different, albeit obvious, guise.

You are conflating completely different kinds of stock scams.

Perhaps in detail, but they both constitute classic Ponzi schemes. Convoluted valuation(s)/promise of returns only to find yourself trapped with a worthless 'investment' when the core of the operating capital has been pilfered by its biggest players.

Goldman Sachs is the underwriter (and reason enough to scoff its initial valuation and then spike in price) of the IPO in question, hence the pump and dump; JP Morgan was taking a billion in fees for services rendered while Madoff laundered his money there.

Re: We are in a Bubble

#82

Post by beagle3 »

shoham wrote: post #57
OzzyB wrote: post #32

As a personal exercise please go and watch this documentary: Startup.com http://www.imdb.com/title/tt0256408/ And then ask yourself if what happened then is anyway similiar to what is happening now. For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product . I kno…

Sure, but Facebook is like AOL or Yahoo in the 2001 analogy it seems to me. Real companies at the top which are overpriced which leads to hyped prices for lots of other companies like Pinterest ($7.7 Billion price tag as per Forbes), Instagram etc. Is it 2001? No, because there's that lesson to look at and learn from, but it's a bubble 'we're' in.

> Is it 2001? No, because there's that lesson to look at and learn from, but it's a bubble 'we're' in.

Agree. As they say - history does not repeat itself, but it does rhyme.

Re: We are in a Bubble

#83

Post by VolatileVoid »

R_Symtex_II wrote: post #81
neilk wrote: post #72

Earlier quoted context omitted.

You are conflating completely different kinds of stock scams.

Perhaps in detail, but they both constitute classic Ponzi schemes. Convoluted valuation(s)/promise of returns only to find yourself trapped with a worthless 'investment' when the core of the operating capital has been pilfered by its biggest players. Goldman Sachs is the underwriter (and reason enough to scoff its initial valuation and then spike in price) of the IPO in question, hence the pump and dump; JP Morgan wa…

I love how people jump on the anti-GS train because it's the hip, popular thing to do. No doubt, GS has done things wrong. But:

  1) They were not the SOLE underwriter of GroupOn, nor were they the largest (that was Morgan Stanley).
  2) They were co-leads with Morgan and Credit Suisse.
  3) They made $8mm in fees on the deal.
To put it into perspective, GS's Q1 2012 revenue was $9.95bn. Let's compare for perspective:

  9,950,000,000
  8,000,000
Obviously GS also profited from the fact that they could buy GroupOn on the cheap, at pre-IPO prices, but even then I hardly think it would have made a dent in their bottom line.

So if you're going to criticize, add Morgan and Credit Suisse to your list. And JPMC wasn't even a lead underwriter on GroupOn. And even then, if you're going to implicate people, you might as well add the other 11 underwriters.

And in fact, you might as well add GroupOn's early investors who standed to make a KILLING on the inflated IPO price.

It's dollars all the way down, sir - and it doesn't start or stop just at Goldman Sachs.

Re: We are in a Bubble

#84

Post by beagle3 »

kls wrote: post #34
dglassan wrote: post #16

I'm getting tired of hearing people claim we're in a bubble, especially when people cite the Instagram deal. Instagram didn't have any revenues? So what. The value of a company is whatever someone is willing to pay for it. Facebook's killer feature is their photo sharing. Given Instagram's surging popularity and mobile dominance, Zuckerburg saw Instagram as a threat, especially if Instagram fell into the hands of a c…

Right, some of the business going public at that time seemed like they where written on a napkin two nights before. They where not even at the pivot stage. It was absolutely insane at the time and everyone knew it. I remember working at some companies on contract and thinking there is no way this is going to last. It seemed like the only people that where making money last go around where the ones providing infrastru…

I the 1996 analogy makes sense, but that does not mean there's 5 years left until the big crash; the nature of investment and trading horizons is such that it gets shorter all the time -- so what took 5 years 10 years ago, might take less than 2 years now. (At the extreme - stock price reaction to news that took hours in 2000 takes seconds now. Most things haven't speeded as much, but everything speeds up; the tulip bubble took much longer to inflate and pop than the internet/telecomm bubble of the late 90's).

And, just as in 2000/2001, when the bubble pops, it would look like the specific reason was independent (some other economic disaster, like a big bank going bankrupt, or fraud bigger than the MF case, that would disrupt the easy flow of money and would require some liquidation). But the specific event that causes a bubble to pop is actually immaterial.

Re: We are in a Bubble

#85

Post by ktizo »

damoncali wrote: post #4
samstave wrote: post #3

I am not interested in any of the "we are in a bubble" posts as much as I am interested in "What the fuck will happen when this bubble bursts!" I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble. In 2001 I had a BBQ at my place - 50 people came and we ate and drank by the pool. Of those 50 - all tech workers - 4 had jobs. I was out of work for 18 months (6 of which I tra…

I don't expect the same level of carnage. THE bubble, the late 1990s, was so enormous that I have trouble explaining it to my younger peers who did not live through it as an adult. They just can't grasp what was going on because it was so damn crazy .

Boo.com spending almost 200 million in 6 months on marketing without really sorting out product. Or even thinking that they needed to.

Re: We are in a Bubble

#86

Post by sidman »

edwinnathaniel wrote: post #77
sidman wrote: post #33

Earlier quoted context omitted.

> ALL of these people are at the greatest risk - what will happen if this bubble bursts. We will be FUCKED I have the same thoughts exactly. I was a junior at university when the last bubble burst so i have no idea what it was like. Currently i have been running my startup after quitting my job for almost a year and we are doing OK but this talk of bubble worries me because i dont know what to expect. Will it only ef…

HN readers cannot predict the future.

No one is asking for a prediction, just getting input from people who are experts and have real life experience pre and post bubble.

Re: We are in a Bubble

#88

Post by kokey »

sidman wrote: post #33
samstave wrote: post #3

I am not interested in any of the "we are in a bubble" posts as much as I am interested in "What the fuck will happen when this bubble bursts!" I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble. In 2001 I had a BBQ at my place - 50 people came and we ate and drank by the pool. Of those 50 - all tech workers - 4 had jobs. I was out of work for 18 months (6 of which I tra…

> ALL of these people are at the greatest risk - what will happen if this bubble bursts. We will be FUCKED I have the same thoughts exactly. I was a junior at university when the last bubble burst so i have no idea what it was like. Currently i have been running my startup after quitting my job for almost a year and we are doing OK but this talk of bubble worries me because i dont know what to expect. Will it only ef…

I've lived through the previous tech bubble, but was only an employee. It didn't really require a lot of cash back then to start up, depending on what you are doing. A shared server at an ISP or university and some perl scripts could get you going. Racks of modems in your garage to start a small ISP. What really drove the bubble was that larger companies would buy these small operations, often including shares in the bigger company, and package them together into a group which then in turns gets sold to even bigger companies like Cisco etc. Things also got crazy because a company's turnover could mostly be based on paying Cisco, Microsoft and Compaq money for equipment and software. I know some people who didn't sell, they remained small in comparison but are still in business today and doing very well.

My advice is that if you sell, make sure you get some cash for it to park somewhere to use during the bad times when raising cash will become impossible and skills will be cheap when you actually do have cash. Parking might mean an asset you can borrow against when it's hard to get funding based on a promise. Don't sell with any deal like shares in the parent, making an assumption that tries to time the market. Most experts can't even time the market right. Apart from that, keep making stuff people outside of the technology industry use and give them value that is worth paying money for, and try not to make it depend on things you get during a bubble: easy funding and clients with easy funding. Trust me those things are hard to determine, you only realise how much of your client base also depended on the bubble after it's over. Most importantly the effects of bursting bubbles take several years to unravel, so don't think that if you're still fine a year after it's obviously burst that you are in the clear.

That said, I think you are already at an advantage. During a bubble salaries are very good and it takes some guts not to get lured in by an easy salary and doing a startup instead. When the music stops and you are still turning some profit you will be glad.

Re: We are in a Bubble

#89

Post by lonnyk »

wtvanhest wrote: post #9
lonnyk wrote: post #5

>comparing yourself to another company’s valuation based on some metric like registered users I really doubt anyone does valuation like this. What is more interesting is engagement and time using product. # of people is more a 'vanity metric' - it looks nice, but it doesn't mean much.

You should discontinue doubting that. Valuations are done using every available metric (users, revenue, etc) and some metrics that have to be "triangulated". Valuation experts select the one they think is most relevant or mix several metrics to arrive at a value. Some acquirers view different metrics as important depending on what they need. Some companies need top line growth to keep their multiple so they buy less…

I've been doing some thinking on this and I definitely secede the point that _nobody_ does valuations like this.

My problem with the article is that it makes it sound as though _most_ valuations are done like this and that is why there is a tech bubble.

Re: We are in a Bubble

#90

Post by rehack »

sidman wrote: post #33
samstave wrote: post #3

I am not interested in any of the "we are in a bubble" posts as much as I am interested in "What the fuck will happen when this bubble bursts!" I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble. In 2001 I had a BBQ at my place - 50 people came and we ate and drank by the pool. Of those 50 - all tech workers - 4 had jobs. I was out of work for 18 months (6 of which I tra…

> ALL of these people are at the greatest risk - what will happen if this bubble bursts. We will be FUCKED I have the same thoughts exactly. I was a junior at university when the last bubble burst so i have no idea what it was like. Currently i have been running my startup after quitting my job for almost a year and we are doing OK but this talk of bubble worries me because i dont know what to expect. Will it only ef…

I am doing a Startup for around 5 years - doing reasonably well, not very well (drawing less than market salary).

Thankfully, was unfazed by the last slow down in 2008. In 2000/2001 I was doing a job. But that burst was very loud, and the first one for the Internet. Can only hope there are not many like those.

Based on your story, I think, you also should not be too much affected by any bubble bursts. As you work in a mode of drawing 60% of your salary, and it looks like its from revenue and not VC funding. So that kind of modes, clearly suggest you are not inside the bubble.

So when a bubble burst, it will happen to directly affect the ones who are VC funded. If you run based on revenues, then it will hurt you only indirectly.

PG wrote in one essay, that be like a cockroach(which survives), and not like a beautiful flower(which gets crushed). So in this context of a bubble burst, can say that revenue based is being like a cockroach. :-)

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