Tech Bubble? What Tech Bubble?

HughPickens.com writes: Conor Dougherty writes in the NYT that the tech industry's venture capitalists — the financiers who bet on companies when they are little more than an idea — are going out of their way to avoid the one word that could describe what is happening around them: Bubble. "I guess it is a scary word because in some sense no one wants it to stop," says Tomasz Tunguz. "And so if you utter it, do you pop it?" In 2000, tech stocks crashed, venture capital dried up and many young companies were vaporized. Today, people see shades of 2000 in the enormous valuations assigned to private companies like Uber, with a valuation of $41 billion, and Slack, the corporate messaging service that is about a year old and valued at $2.8 billion in its latest funding round. A few years ago private companies worth more than $1 billion were rare enough that venture capitalists called them "unicorns." Today, there are 107 unicorns and while nobody doubts that many of tech's unicorns are indeed real businesses, valuations are inflating, leading some people to worry that investment decisions are being guided by something venture capitalists call FOMO — the fear of missing out.

With interest rates at historic lows, excess capital causes investment bubbles. The result is too much money chasing too few great deals. Unfortunately, overcapitalizing startups with easy money results in superfluous spending and dangerously high burn rates and investors are happy to admit that this torrid pace of investment has started to worry them. "Do I think companies are overvalued as a whole? No," says Sam Altman, president of Y Combinator. "Do I think too much money can kill good companies? Yes. And that is an important difference."

Comments

Who cares if it kills companies?

[msobkow]

What ticks me off is not that bubbles kill companies, but that bubbles kill retirement plans because of all the greedy "analysts" betting on a "sure thing."

If it happens...

[alphatel]

It's a good thing for the economy to clean out the trash. There's no such thing as a market that never collapses. If we had that we could call it by its true name: fantasy.

it depends

[MrKaos]

Consider that venture capitalists invest in the exit, not in you having a great time building a great idea into a great company with great people.

Then consider 1915-1965 had innovations like penicillin, the auto mobile, aircraft, the space race, and that 1965-2015 has had the IC and internet as really defining innovations then from that perspective the rate of innovations is on the decline.

All the new "inventions" I can think of that are available to the masses are all designed to improve something that already exists to get people to consume more efficiently. I think this is directly attributable to patent and copyright laws preventing long term economic growth that comes from innovating new things which is the longer term fall out from activities conducted by the music industry and patent trolls. IT is just the most obvious sufferer.

Until the X and Y generations (or N-generation for those born *after* the invention of the internet) start taking political power from the Baby Boomer's we are going to be stuck in 1950's thinking. And that's not to say some Baby Boomers aren't capable of 21st century thinking, it's just that there isn't enough of them to make a political difference.

I'm convinced that humanity is on the verge of some spectacular innovations, like long carbon nano-tubes, genetic and nano engineering. However all of these ideas pale in comparison to the idea that we can change something as simple as the laws that maintain the status quo.

So this cycle of bubble and burst will continue whilst the engines of innovation are suppressed. Who knows when it will burst or deflate - just be ready when it does.