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.<p>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]<p>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.<p>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.<p>But I have no idea how Cuban could possibly make the argument that <i>it's worse than 1999</i>.<p>[1] <a href="http://en.wikipedia.org/wiki/Mark_Cuban#Business_career" rel="nofollow">http://en.wikipedia.org/wiki/Mark_Cuban#Business_career</a>
[2] <a href="http://ycharts.com/companies/FB/market_cap" rel="nofollow">http://ycharts.com/companies/FB/market_cap</a>
I think Cuban is wrong. It's WORSE when ordinary investors are risking their money. Today, you've got angels and VCs that have risked their money. And this is money they don't need. Big deal if everything implodes, what do they lose? Simply their bets. Back in 2000s, a lot of ordinary people lost money they couldn't afford to lose.
"All those widows and orphans"<p>Spare me. What are the numbers on those widows and orphans? Because the thing is, tech investment right now is driven by investors and funds—entities that by definition should be able to handle their losses. Entities that by definition are more educated about the downside risk than the tons of John Q Public idiots that were day trading Internet stocks back in 2000.<p>Maybe the numbers support what he's saying. If they do, I'd love to see them. <i>shrug</i>
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.<p>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.<p>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.<p>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.<p>Similarly, "financification" is happening in areas of real estate that have previously been slower markets driven by insider knowledge and minimal transparency.<p>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.<p>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.<p>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.
Over the last three years Cuban has consistently, publicly said he doesn't see a bubble.<p>Now he's seeing one derived from crowd funding? I'm not sure whether to think he's on to something, or whether he dislikes the idea of having vastly more competition for the sort of angel deals he frequently does. These new crowd funding sites are pushing up his cost to get into early rounds on good companies. There's no chance he likes seeing his entry fee substantially pushed upwards (lowering his returns); he has frequently pointed out how much he dislikes Silicon Valley's expensive early valuations and has proclaimed he views that as an isolated bubble.
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's when the common person gets hurt and the effects of a bubble are felt by the general public.<p>Accreditation rules can seem unfair, but this scenario is exactly what they're designed to prevent. Crowdfunding is a whole different issue. Most crowdfunding campaigns trade products for money, not equity for money. Kickstarter campaigns tend to go bust frequently, but people don't invest their life savings in a crowdfunded project hoping to strike it rich. People with disposable income investing hundreds or thousand of dollars in an idea isn't a sign of a bubble. It might turn out to have deleterious long term effects, but, we'll see.<p>Maybe I'm not understanding what Cuban is saying here, but it doesn't seem to make a lot of sense.
> Broadcast.com, AOL, Netscape, etc. Today its, Uber, Twitter, Facebook<p>Even mentioning his company in the same breath as Uber, Twitter and Facebook shows how out of touch he is IMO. Broadcast.com was hardly a business! Those companies have BILLIONS of dollars of real revenue.
I get a sour taste in my mouth every time I hear wealthy people "looking out for" the small-time investor who may end up needing the money to fix their car after they've invested it.<p>I would take a poor, but well-educated and well-informed investor in a transparent marketplace light years before I would blindly accept an arbitrary rule that states you can't invest your money where you want to just because you don't have enough.
This isn't an indictment of valuations being necessarily inflated more than they were in 1999. He's critiquing a new preference for private investments which are very, very difficult to liquidate. That lack of liquidity, combined with easier access to investments via crowd funding has the potential to crash very similarly to mortgage backed securities.<p>It's easy to get in and impossible to get out. If things start falling, investors are locked in for the whole ride down. That structure combined with a heady appetite for putting it in the first place primes the pump for a painful crash.<p>[edit for question] He implies the SEC is restricting mechanisms for adding liquidity to private/crowd funded investments. Any idea if he has a specific proposal in mind?
So the argument here is that the SEC should lessen investment restrictions so that VC's can pawn off their junk stock to the unsuspecting John Q. Public as soon as they see (and hopefully for them right before) the bubble pops?
Some investors spin doom and gloom as an excuse to lowball entrepreneurs they're offering to invest in.<p>Shark Tank is a pretty good example of this, even if Cuban's not the worst offender on there.
Cuban's weirdly wrong in several ways in his post.<p>2014 was the second biggest year in the history of the US stock market. More than 275 companies went public to raise more than $85B. In 2000, 406 companies raised about $96 billion. So sure, last year, there were fewer IPOs and they were on average larger than 2014. But this is not a sign of over-regulation.<p>Heavy SEC regulations did not crush IPOs for SMBs. That's a knee-jerk blame government reaction that conveniently ignores the real reason why IPO-able companies don't go public much any more. They don't need to.<p>Uber is a good example. Their Series E is coming in at over a billion. Historically, they would have had to turn to public markets for that money.<p>But the JOBS Act actually made it possible for private companies to stay private a lot longer, because they are no longer penalized for granting stock to their employees, for example.<p>Personally, I would overjoyed if it was impossible to sell crappy private companies' shares. That would limit the damage to the rest of the economy, but sadly that's actually not the case. SecondMarket, Exhilway private capital market, Campbell Lutyens, Cogent Partners, Probitas Ps and Triago all serve the secondary market for shares of private companies.<p>If Cuban can't find a greater fool to snap up his shares, he's doing something wrong. There are plenty of venues to offload that stuff.<p>Cuban also seems to misunderstand liquidity in public markets. Just because a company is listed on a public exchange doesn't mean its shares are liquid. There are many listed companies that see very little trading in their shares on any given day. And if their valuation tanked, for whatever reason, that limited liquidity would evaporate altogether.<p>During the 2008 crisis, it was impossible to unload many companies' shares without making the price tumble. You just couldn't move a large block.
So Cuban is essentially complaining that the market for small time ipos is dead. Maybe he is right, I do not know.<p>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.<p>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.
Heaven forbid you read the comments section before the actual article. His point:<p>>The bubble today comes from private investors who are investing in apps and small tech companies.
...
>Why ? Because there is ZERO liquidity for any of those investments. None. Zero. Zip.<p>Is he wrong?
"In the tech bubble it was Broadcast.com, AOL, Netscape, etc. Today its, Uber, Twitter, Facebook, etc."<p>Did he just compare himself to Uber and Facebook? Wow...
If the definition of a bubble is when people are knowingly making bad investments and counting on a greater fool, then if there is zero liquidity then that pretty much means that we can't be in a bubble.
>If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?<p>A stock that is personal and non-transferable once bought, should probably be valued using discounted future dividends. Or discounted buy-out price.
I think he's conflating two very different problems. One is the issue about liquidity and the other is the so called tech bubble. The liquidity issue is real, market bubbles are not.
I bet this is about liquidity.<p>(<i>reads article</i>)<p>Yep, it's about liquidity.<p>I bet the HN comments don't mention liquidity categories.<p>(<i>reads comments</i>)<p>Nope, not a single one.<p>How did I know!!!!??!!11<p>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 <i>incremental</i> thing. That will cause a shortage of liquidity for new proposals (the dreamers) and keep those capable of bigger proposals busy. (the titans) You will have a liquidity shortage for the dreamers.<p>He is right. Incremental investment is no longer possible. All you have is a gigantic bar-to-entry for dreamers and when the titan shortage becomes apparent (no amount of liquidity will reveal more titans to keep the game going), the dreamers will be flushed out. A few titans might go down in the fallout as well.<p>You either solve everything or nothing today. It's an untenable position that will keep liquidity on the sidelines and stifle innovation. It's also very bubbly as you have more money than there are opportunities (As classified by laws) to chase.