This weekend saw another flame war over whether the U.S. tech industry is in a “bubble” after New York Times reporter Nick Bilton wrote a story about high valuations for companies that have little or no revenue. When a company has no business model, investors refer to the valuation as “mark-to-mystery,” he reported. Instagram is an oft-cited example among bubble-believers, which particularly irks bubble-deniers.
Investor and accelerator founder Dave McClure took special umbrage at the article.
Q: is there a bubble in tech journalism? let’s see… i’m reading more crap than ever, but not paying anyone a dime. A: yep.
— Dave McClure (@davemcclure) April 29, 2012
So where do the web’s pundits currently come down?
Nick Bilton, reporter. “When this next bubble pops — and it will pop — the idea to make no money can finally pop, too. Then investors can start working with companies to build businesses that have long-term financial goals, instead of just building a short-term mystery.”
Jeffrey Pfeffer, a professor at Stanford’s Graduate School of Business. “This is 1999 all over again, but this time, it’s gotten worse. We’re back to companies throwing around funny money. The economic values don’t add up… These companies are simply being founded to be bought. With the exception of a select few, Silicon Valley has spawned no real companies over the past decade. Even now, as the value of eyeballs has gone down, people are buying concepts, not companies.”
Dave Winer, father of RSS. “This time around they’re building businesses whose only way of making money will be through advertising. Are there as many different ways to slice things as all the startups, collectively, would have you believe. And when they’re done, what will happen to them. What institutions will the bubble-pop take with it. How many people, and which people. That’s what we have to worry about.”
Nick Denton, publisher. “The tech world is particularly obnoxious at the moment… I do remember enjoying it more in 2003 and 2004, when it seemed as if the only people who were doing anything were the diehards.”
Tim O’Reilly, publisher. “Me, I like real businesses!”
Howard Lindzon, founder and angel investor. “You can’t have a bubble in startups when it costs so little to start a business. We do have too many startups with angel valuations that are way too high. We are not near the point where the average investor owns these.”
Dave McClure, investor. “LOTS real startups solving problems, making $$$, on very small capX.”
Paul Graham, investor. “In every market prices rise and fall, like a sine wave. Prices are kind of high now. They’ll probably go down in the future, right? But high prices is not a bubble. A bubble is like a mania, right? I mean, people are thinking, “I gotta get in or I’ll get left behind”, right? And I don’t feel that people are thinking that now [...] I mean, I was there for the first bubble and that was a mania!”
YES AND NO
Chris Dixon, angel investor and CEO. “People who argue we aren’t in a bubble are casually dismissed as promoting their own interests. I’d argue the situation is far more nuanced.”
MG Siegler, blogger and investor. “Dixon nails each point that should actually be considered now when talking about a ‘bubble’ in our space. Instead, we often get no facts in these bubble stories, just a bunch of vague fear mongering. The same kind we got a year and a half ago. And a year before that. And a year before that. Etc.”
Fred Wilson, investor. “Zynga trades at something like 13x pre-tax cash flow when you back out the $1.5bn of cash they have. that certainly doesn’t seem like a bubble valuation either.i do think there is more money sloshing around the tech/internet/mobile sector now than there has ever been. and that is impacting valuations across the board.the question is if this is temporary or the “new normal”. i guess we will find out.”
BUBBLES IN TECH ARE IMPOSSIBLE
Justin Kan, founder and CEO. “Anyone who tells you that you shouldn’t be in tech, or that the current market situation will create an oversupply of people in tech, is doing you a massive disservice. You should be in tech if you can stomach it at all.”