We are in a Bubble

The third point explains the first two. Something has to be done with the <i>billions</i> of dollars fleeing real estate and the general stock market. You get billion dollar valuations when people are saying "I have a billion dollars and I really need a place to invest it"<p>The startup community needs to get over the idea that "valuations" are based in reality. Rich people need ways to get richer. They could choose tech startups, they could choose real estate, they could choose tulips... it doesn't matter as long as they can make up money and push it back and forth between one another.<p>But alas, it feels much better to say "My company was valued at a billion dollars!" than it does to say "Rich people used my company as tool to transfer money to each other!" If we would just stop taking the numbers seriously then we could stop the debate about whether or not we're in a bubble.

This bubble will hurt the smaller startups by no-name people, people that invested everything in an idea that in a non-bubble environment would be laughed out of the room, but with companies like YC around (not that this is their fault) that are harping on about the value of ideas and people it's growing.<p>There are people here on HN daily that post links to their blog posts that have put all their savings into their startup that has no potential to ever be anything other than a furnace for their money, but people encourage them, they are the people who will be hurt.<p>How many incubated startups (through programs like yc) will ever go on to be anything other than shut down? With all this cultish behaviour around YC a lot of people are believing that making money doesn't matter any more. Just look at the startups people posted in the yc rejection day threads, some of them just make absolutely no sense.<p>There is so much money in the internet now that when everything goes wrong nobody outside of the startup scene will really notice because the businesses that matter, the businesses people rely on will be doing fine. There will always be room for businesses that make money, bubble or not, those businesses are the ones the "public" care about. How many "normal people" would care if Instagram disappeared tomorrow and would have their lives impacted a week later? How many would care if ebay went? I suspect the latter would be the worse for the general public, and the latter will never happen because ebay actually makes money.

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!"<p>I have been in tech in SV since 1997. I was here for the build, frenzy and pop of the last bubble.<p>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.<p>I was out of work for 18 months (6 of which I traveled the world) - and luckily I have more than just tech skills which I was able to fall back on.<p>On HN we are really focused on technical ability - but there are millions of employees in all our tech companies that are not technical: think of any department outside of IT and Development == Sales, Facilities, HR, Marketing, Finance (although this is the class of people most responsible for this problem), etc...<p>ALL of these people are at the greatest risk - what will happen if this bubble bursts. We will be FUCKED.<p>What will it look like

As a personal exercise please go and watch this documentary:<p>Startup.com<i></i> <a href="http://www.imdb.com/title/tt0256408/" rel="nofollow">http://www.imdb.com/title/tt0256408/</a><p>And then ask yourself if what happened then is anyway similiar to what is happening now.<p>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 <i>have</i> revenues, hell, they even have a <i>product</i>.<p>I know that some of the valuation numbers being thrown about can be unreal, but I'd rather have a converation about whether FB is worth $1b or $10bn or $100b, instead of whether is has <i>any</i> value at all.

<i>Each incremental company, to some extent, dilutes the values of others.</i><p>Ask yourself: Are you part of a herd? Is your company doing what the next one is doing, just slicker and faster and with a twist? If the answer is yes, and you're trying to do a startup, then you are part of the bubble that will pop. (In a bad way. Worse still, you may be part of a "reputation bubble" as in the music or fashion industry.)<p>Also ask yourself: Is there an information asymmetry on your side? Do you know something that most everybody else doesn't? Is there something that scares everyone else away, or that everyone else hasn't seen yet? If not, then you might be in the part that pops.<p>For those standing off to the side: Are there an awful lot of startups doing similar looking things?

We are seeing growth in online advertising which is driving the perception of a bubble regardless of whether one exists or not.<p>The "We are in a bubble" argument should be - Ad revenue is capped at a total # of dollars. We have seen various internet businesses take share from magazines, cable broadcasters, billboards which has led to unsustainable growth which will end soon. When it ends people will realize projecting 30%+ growth for website ad revenue is dumb and will lead to massive losses.<p>The "we are not in a bubble" argument should be: Internet advertising is taking share from other sources and will continue to do so for a long time. Because online advertising allows you to buy products right away or customize ads to individuals, its more efficient. That efficiency makes advertising spending more likely to increase as a percentage of costs for businesses. A combination of those will help fuel continued growth in startups.<p>Regardless of which you believe or a hybrid version, at some point internet advertising will reach its max and there will be a bubble followed by a crash. I have no idea whether that is happening now or will happen sometime soon or in 20 years.<p>[edit] it is also possible that it will never happen

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.<p>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 competitor, like Twitter. So Zuck pulled out FB's wallet and scooped up Instagram.<p>I've been hearing people say we're in a bubble for at least 2-3 years now, yet venture firms are raising new funds every week. Acquisitions are happening every day, IPO's are ramping up again. Unlike the companies of the DotCom bubble, companies going public today have real business models, with real revenues, and <i>most</i> of them are already profitable. In 2000 there were companies going public that were still trying to figure out what their business model actually was. I guarantee you'd never see that today.<p>Sure, it may seem like it's easier to raise seed funding nowadays, but that's thanks to all the incubators that have popped up and the funding model pioneered by YC. That doesn't mean we're in a bubble. Angel Investors simply found a way to make seed funding scale in a way that reduces risk.<p>We're not in a bubble, and no, I have nothing to gain from saying that.

Instagram isn't a great example: it was already useful and successful and might well have been worth more if it had held on. GroupOn is a much better indication that a bunch of non-technical people are eager to buy overvalued tech stocks.<p>Of course we are in a bubble. Not in the real estate bubble sense, mind you, but in the 1999 tech bubble sense. Tech and health care are the two industries actually growing.<p>Right now no one knows which companies are really creating value and which are just hype. The last bubble created more value than money was invested, but the investors don't discriminate well between valuable companies and those that are just taking them for a ride. That doesn't mean that all the companies are overvalued, just that some of them are.<p>Plenty of companies emerged successfully from the last bubble. Plenty of companies will come out of this one by creating actual value. Just don't be an idiot and invest your money, don't believe companies that tell you they'll get you rich, don't take jobs that seem to be too good to be true, and who cares what investors are doing?

No...no.<p><i>Surplus of Capital<p>Since 2008, most traditional investment vehicles like real estate and the stock and bond market have had poor returns. Capital has been shifting from these traditional vehicles to Asia and Venture Capital in search of extraordinary returns.</i><p>So, what you have to remember is that there are actually several different kinds of economic catastrophes, and that a bubble is only one of them. You also have hyperinflation, for one, and it's much more plausible that this is what is actually happening. And while this is largely irrelevant for America as a whole, it matters a lot at a local level: if you're in California, for instance, you're alright as you're upstream from a lot of folk. If you're in the Rust Belt, though, you might find it's suddenly even harder to compete with Asia. So while there is something rotten in the state of Denmark, the tech sector is not the one in trouble.

Surplus of capital is a huge factor. Got numbers?<p>When Peter Thiel started his class at Stanford, he spent the first couple of lectures reviewing the 90's. One of his argument to explain the dot com bubble was the influx of capital from around the world to the U.S., and ultimately to the valley. Could be the same here. not sure.

Like the last bubble, it will likely end when the Fed raises interest rates.<p>Until then, party on.

It's time to move on from HackerNews and focus on building companies/businesses rather than talking about things that are not productive in any way or shape.<p>Naysayers. Pessimists. Negative thinkers. "No man". Doomsayer. So long...

I've seen a lot of this back-and-forth on HN of late, but I can't help but wonder what difference it all makes.<p>Even if we are in a bubble, I doubt we have any real chance of turning things around gracefully. Everyone participating and benefiting from this bubble are inclined to support it, while those outside the bubble have no power to change the current trajectory.<p>The true losers in this scenario are the entry level players, and other support folk who become collateral damage when things finally come tumbling.

General rule of thumb. If your company has solid revenue or is close to profitability...you will be fine when the bubble bursts. If your company is not even close to profitable...you will need to polish that resume some more. The better option is not to let other people's opinions, abilities and spending habits control your life.

So long as people are still saying its a bubble, its not a bubble.<p>Beware of a market so hot that you are a fool not to be part of it.

Purely from investor perspective, here's how I would do FB valuation:<p>Assume that FB doubles its profits in next 2 years. Then also let's say it gets in to 3 new businesses as big as its current business and dominates them just as well. That would put their profits to ~$8B.<p>Now again assume that FB maintains its dominance successfully on all of the above 1+3 businesses for next 10 years. So in this "dominating life span" of FB, there would be total $80B made. If you put probability of everything from inventing new businesses to fending off all competitors successfully for next 10 years at 0.5 then FB's risk adjusted worth would be $40B. It should be obvious that this valuation is way too on generous side (normally I would more aggressive parameters). It should be easy to see that valuations like $100B is extremely unrealistic.<p>As OP has pointed out bubble is an effect when people take one unrealistic valuation as a reference point and make their own valuations just as unrealistic causing system-wide chain reaction. With Instagram, Evernote and such that chain reaction is unfolding right in front of us.

From a business perspective (and believe it, it hurts me saying that), this discussion makes no sense. It's like saying: 'are we in a PMIs bubble'? Or, 'are we in a multinationals bubble?'. The point is that we tend to group things together in categories. But does it make sense to put, say, Facebook and, say, MakeLeaps (start up that manages invoices for small businesses) in the same category? It think it does not, as much as it does not make sense to put Apple and Mc Donald in the same pot. Would you say Apple and Mc Donald are in a multinationals bubble?<p>However, those discussions do show something, that there is an underlying need to understand the market and the businesses out there. More start ups focused on BtoB I think are needed. Corporate and business software sucks and costs a lot in terms of actual cost and lost efficiency, when are people going to realize that and work on that too?

&#62;comparing yourself to another company’s valuation based on some metric like registered users<p>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.

"Each incremental company, to some extent, dilutes the values of others."<p>I take issue with this point in the article as it assumes competition. While there is competition obviously, many start ups are actually complements for other companies. It is entirely possible that many of the start ups "competing" with each other actually thrive on the success of others and even increase the success of other companies through their existence.<p>As an example, think about a company like Heroku, and Amazon. Heroku makes using AWS easier, so Amazon rents more time and servers to Heroku while Heroku also makes money that otherwise wouldn't have been made. These relationships exist all throughout the business world and are good, not "bubble" influences.

I think the OP is missing the point here, because there is much more than just profits when we talk about valuation. There is sales obviously, but assets too like more materials things (chair, buildings, etc) but also immaterial assets (employee, IP, so on).<p>On top of that, the whole situation (the when/how/where thing) is also important, like someone said, a glass of water worth much more if Zuckerberg is in the desert, than instagram <i>at that moment</i>...<p>Valuating a company just with profits (or users) is in my opinion, too simplistic and so undermine a little bit the argument here.

There's a lot wrong with this, but I'll just say that there are many more than two ways to value a company, and if you used the first type he cites (taking the net present value of future profits) you are effectively ignoring any assets the company currently owns, including IP, cash, property, plant, and equipment, short-term investments, long-term investments, just to name a few.

All this "look at that. now look at this. We're in a bubble"... is this an Old Spice ad?<p>Edit: oops.. I forgot to add value to the conversation. Yes, we are in a bubble. Is it as big as before? probably not. Is it going to deflate (or even burst) eventually? yes. Is it going to be tragic? yes... a fool and his money are quickly separated.

The problem is evaluating social networks on a per-user basis without considering Metcalfe's law: <a href="http://en.wikipedia.org/wiki/Metcalfe%27s_law" rel="nofollow">http://en.wikipedia.org/wiki/Metcalfe%27s_law</a><p>I.e. it is not a linear relationship between the number of users a the value of the network.

If we are in one, where on the curve are we? <a href="http://blog.ganderson.us/wp-content/gla/uploads/2011/02/bubble-graph.jpg" rel="nofollow">http://blog.ganderson.us/wp-content/gla/uploads/2011/02/bubb...</a>

I think bubbles just love new markets.<p>The last bubble was the web, then a small web 2.0 bubble. This bubble is mobile, or SAAS, or PAAS. Maybe Mobile SAAS. I give up.

Amazing how a post with this title gets to the top of Hacker News in a matter of minutes EVERY TIME

Funny, they've been saying this ever since the last one.

If I had any amount of money, even a penny, for every time some yahoo announces that we're in another bubble ...

if a developer sells a game for .99 cents and it sells 1.3 million copies, is the company worth a million dollars? No one knows how this "bubble" will go down, there should be more focus on the evolution of Javascript