An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector.<p>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 <i>did</i> 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 <i>does</i> 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.<p>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.<p>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.<p>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.
Theory: Wallstreet has limited other domestic outlets for their investment money since the 2008 crash, and is therefore investing heavily in tech. This will continue until either 1) more sectors of the economy recover present new and/or better investment opportunities or 2) a crash occurs. However, in the case of #2, which everyone fears, unless the conditions change and wall street gets a new location to place their money, tech will still be one of the best domestic investment opportunities, and we'll see a new climb in spending after said crash.<p>That's my 2 cent theory, I'd love to hear some discussion on it.
On a macro level, a likely hypothesis for this trend is that there is nothing better to invest in than tech. But tech isn't moving fast enough (value is hard to create, not in a gold rush period), so we try to translate money into growth much more. Because otherwise that money's just sitting around!<p>In an ideal world that money might somehow be invested in long-term societal growth than <i>can</i> yield high tech growth in the future, like education, or maybe investing in individuals for some long-term return on their income. More R&D at all levels. Just random ideas. Point is, it'd be nice to see some creative thinking with investment money rather than see it pumped into companies trying to sabotage each other's ride sharing apps, or out-sell their fundamentally identical crm services, etc.
I actually threw together some very lazy (just trying to do a little something every day) graphs on VC yesterday[1] if you want to see the dot-com bubble in terms of VC disbursements and number of deals. Both the old bubble and the recession are extremely visible. It'll be interesting to see what these graphs look like in a couple years when reporting catches up to 2013-2014.<p>[1] <a href="http://btus.us/venture-capital-in-the-united-states-1998-2012/" rel="nofollow">http://btus.us/venture-capital-in-the-united-states-1998-201...</a>
I have a hard time even reading any of these pieces where a VC is complaining about high burn rates / valuations all while continuing to invest.<p>"Because my competition will continue to invest" is not a good reason.<p>You don't see Warren Buffet investing at valuations he believes are untenable, just because the market happens to be up.
I've discussed this at length with investors, entrepreneurs, and upper level management at large tech service agencies, and I'm not convinced that there is necessarily a bubble this time around. Accounting for the massive increase in bandwidth, CPU, GPU, smartphone ownership, software development practices, AI logic, and reliance on data compared to that of 1999, it's really a flawed model to draw 1:1 parallels in my opinion.<p>While there will be a shift at some point away from software/web entities and into manufacturing (to catch up meatspace to webspace), it will be these tech entities that will largely lead the charge, to enhance their own offerings. The example put forth in the article is as flawed as the logic it purports to criticize:
"SAYING WE’RE NOT IN A BUBBLE BECAUSE IT’S NOT AS HIGH AS 1999 IS LIKE SAYING THAT KIM-JONG-UN IS NOT EVIL BECAUSE HE’S NOT HITLER."<p>Compared to 1999, the value drawn from these companies inside the "bubble" doesn't even remotely exist within the same qualitative and associative parameters.
Looking strictly at numbers in this situation is a bit like forgetting to account the inflation difference between 1800 and 2014. Of course the amount of money being invested in tech has grown enormously; in 1999 everyone didn't walk around with the internet in their pocket.
>>>>In the same way, Gurley said, too much cash in the startup economy means weaker companies can survive without having to generate cash for themselves.<p>Isn't this how business should work? Weaker companies lose and the stronger companies win? Those with good business plans, good marketing strategies and a solid product should be able to weather a crash.<p>Also, those companies that actively plan for a crash usually do much better. Saving money, having a plan B in place and assuming its going to happen is a lot smarter than simply believing we're not in some kind of bubble and then losing everything when the market eventually corrects itself.
In the summary, “At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital,” Wilson said, “and start producing value the old fashioned way.”<p>I do believe a significantly higher proportion of companies today are doing exactly that, and are quite focused on it, whereas they were not in 1999. That's a general and very un-scientific argument for why this bubble (which it still surely is) is not as bad.<p>Sure, some companies have shaky monetization strategies; but you just can't say companies like Uber are not producing value (rumors of ~$10 <i>billion</i> gross revenue).
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.<p>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.
Although the economy suffered a hit, does anyone remember what the job market was like for programmers after the boom? If this article is right (which I'm not convinced of), even to a smaller extent -- how do you think that will impact the current job market?
Has anyone here personally lived, worked, and saw the dot com boom and bust in Silicon Valley? More so, do you happen to currently live and work here still?<p>I have, and although I don't think the current tech boom is as bubbly as the late 90's, I do see a lot of similarities in the area. Traffic, though, is no where near as bad as it was back then. But, it's getting there. However, construction is at an all time boom. I have never seen more cranes nor construction in SF ever. I think we are back to heady times, and I would be really cautious as an investor in the next 2 years.
It's easy to chalk this up to herd behavior but what's scarier is the real possibility that solid investment choices don't really exist in America anymore.
After trying to figure out if he was actually going to back up his argument anywhere - at some point I realized he was essentially saying that Uber is not different than Pets.com and stopped caring about the article.