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posted by martyb on Monday May 25 2015, @11:44AM   Printer-friendly
from the double-double-toil-and-trouble-fire-burn-and-market-bubble dept.

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.”

 
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  • (Score: 1) by caffeinated bacon on Monday May 25 2015, @02:22PM

    by caffeinated bacon (4151) on Monday May 25 2015, @02:22PM (#187610)

    You're forgetting the future.

    What if this company gains critical market share? How much money will they make if they are the first to exploit some niche that turns out to be profitable?
    First mover advantage is quite real, how much are people willing to risk for a big payoff?

  • (Score: 2) by VLM on Monday May 25 2015, @02:54PM

    by VLM (445) Subscriber Badge on Monday May 25 2015, @02:54PM (#187615)

    Exactly, just like the flooz market or the dog food delivery over the internet market.

  • (Score: 2, Insightful) by Anonymous Coward on Monday May 25 2015, @03:06PM

    by Anonymous Coward on Monday May 25 2015, @03:06PM (#187619)

    Do you really think Uber is worth $41 billion?
    How much do you think Facebook is worth and when will investors be able to cash out on it?

    • (Score: 2, Insightful) by caffeinated bacon on Tuesday May 26 2015, @04:24AM

      by caffeinated bacon (4151) on Tuesday May 26 2015, @04:24AM (#187868)

      No of course not. Free money has caused an everything bubble.
      But compared to an identical company just starting out today, it must be worth more.
      You both must have missed the 'turns out to be profitable' part.