After gushing with pride over Storyboard's many accolades, Mr. Karp pivoted, abruptly. The year-old concept "had run its course" and the editorial team, he announced, "will be closing up shop and moving on." Please, he asked, "join us in wishing them well."

But the Storyboard layoffs, which affected three staffers peripheral to internal operations, are hardly the only departures Tumblr has faced over the past six or seven months. Rather, they're the only ones Mr. Karp has spoken about publicly.

Sources close to the company, who requested anonymity, told Betabeat that a handful of high-level deputies have also quietly ended their tenure at Tumblr--leaving a noticeable absence around Mr. Karp where his leadership team should be.

"It’s like the fucking Argentinian government, people just get disappeared," said one source.

The most recent departure is Blake Matheny, Tumblr's VP of engineering, who gave notice in the past few weeks. Another source called it a "huge loss," adding, "Blake was the strongest tech leader there."

Fredrik Nylander, Tumblr's former executive vice president, gave notice last fall, we heard, but was asked to stick around by Mr. Karp, showing up at the office with less and less frequency. His LinkedIn profile states that he started as the CTO of Oscar, a New York City-based startup, this year. Mr. Nylander started as Tumblr's VP of technical operations back in 2011 and was promoted in less than a year to VP of engineering.

As EVP of Tumblr, Mr. Nylander replaced the role of former vice president Andrew McLaughlin, a veteran of Google, ICANN, and former deputy CTO for the Obama administration. Mr. McLaughlin lasted as VP at Tumblr for just nine months.

Marc LaFountain, Tumblr's former vice president of tech support, left in October, following his wife, an executive at R.J. Reynolds, to Switzerland. And last month, advertising veteran Rick Webb, who played a pivotal role consulting on the six-year old company's recent push toward profitability through advertising, announced that he too would be moving on after 10 months.

In the past, Tumblr has also lost lead developer Marco Arment, president John Maloney, and "vice president of people" Charlie Gray, an Xoogler who was with the company for only six months. So for tech leadership, that leaves Derek Gottfrid, VP of product, who may oversee some operations.

"We don't comment on staff moves, however all of the people you've referred to are very different circumstances spread out over months and not related at all to the closure of Storyboard," Tumblr spokesperson Katharine Barna said by email when she heard we were inquiring about the departures. She declined to comment further.

We reached out to each of the execs and will update the post when we hear back. But the sources we spoke with didn't attribute the recent shakeups to cost-cutting due to pressure from the board or even clearing the decks for Tumblr's rumored fundraising. Instead, they cited frustrations with Mr. Karp, who tends to marginalize deputies who disagree with him.

"Some people seem genuinely happy at Tumblr, but most are miserable, largely because Karp is wildly unpredictable and inconsistent," said one source. "Karp seems to treat Tumblr like a junior high lunch room--he sits with his five favorite people of the moment, and treats everyone else like a reject."

Mr. Karp has been encouraged to look for COO for Tumblr. Speculation says the role may go to former News Corp. chief digital officer and AOL CEO Jonathan Miller, who has been consulting for the company--one of the mentors Mr. Karp tends to collect. But Mr. Miller may still be hampered by "golden handcuffs" from his time at News Corp. Watchful observers don't have high hopes. "Even the COO search is a sham," said one source. "He’s not looking for Sheryl Sandberg, he’s looking to sideline that whole thing."

These staffing changes come at a critical time for Tumblr. Business Insider reported last week that Mr. Karp was in Silicon Valley "raising a big round of funding," even though it "doesn't need to raise more money." However, according to a profile in Forbes from January, Tumblr generated just $13 million in 2012, despite traffic of 18 billion page views per month. Forbes also noted that Tumblr shelled out an estimated $25 million in operations in 2012 and expects that figure to increase to $40 million in 2013. The company, which is headquarted in a cushy Flatiron clubhouse, last raised funding in 2011: $85 million at an $800 million valuation. Up until the end of 2012, Tumblr reportedly had a burn rate of $4 million to $5 million a month, before transitioning to its own data center, which lowered the burn rate to $2 million a month.

Given those financial concerns, some seem puzzled at the board's faith in Mr. Karp. "The fact that Tumblr is losing its most experienced people, at a moment when it wants people to believe it's succeeding in a big way, suggests some real incompetence on Karp's part," said a source.

The success Tumblr wants to project--as its Silicon Alley cohorts are trying to avoid down rounds--is related to the monetization strategy it launched for first time last year, which relies on native advertising via the Tumblr Dashboard, rather than traditional display or keyword ads. As head of sales Lee Brown told Bloomberg recently, brands pay for prominent placement of their posts, acting much like other users on the service:

“Marketers have become accustomed to buying scale as opposed to earning it,” Brown said. “We’re not really selling ads, we’re promoting their content.”

That approach has managed to attract big brands like Target, Coca-Cola, Adidas, Lions Gate, and Christian Dior, who average purchases of "just under six figures." Tumblr has begun offering the same service on its mobile app, which it says should lead the company toward since first annual profit since launching in 2007. But often the posts featured in the prominent Tumblr "Radar" spot on the dashboard come from regular users instead of brands, as evidenced by this unofficial archive.

One source was skeptical of the company’s emphasis on pageviews and number of blogs, given its advertising approach. "It has no strategy for monetizing anything other than logged-in dashboard users. Those numbers are much, much lower than what Tumblr's PR would suggest. So they're basically spending VC money to provide a free blogging platform, the vast majority of which can't be monetized."

Others disagreed with that assessment. "Monetizing the dashboard, actually, is the smart move. Why go and try and do deals with 100 million blogs, and share revenue, when you can just monetize the dash, which is bigger and you totally control?"

If Tumblr is indeed seeking another financing round, investors will no doubt be paying attention to its ability to monetize, as well as traffic itself. In November, Mr. Karp boasted that Tumblr had cracked Quantcast's list of top 10 U.S. websites. (It fact, Tumblr mistook the "top ten" badge on Quantcast as its website ranking. Instead, it had cracked no. 9 on Quantcast’s list of top networks and no. 15 on Quantcast’s list of top sites.)

Currently, Tumblr is ranked no. 21 in the top websites. A Quantcast graph shows that traffic appears to be plateauing, bolstered by an uptick in mobile users.

This story is developing, please email tips@betabeat.com with further information.

#GPOY (Photo: some genius at Digiday)

Time for a little trip down memory lane! Digiday asked several ad-tech execs for high school snapshots, and Tumblr revenue consultant Rick Webb really delivered. He turned over this amazing proto-selfie, which wouldn't look out of place on your Dashboard today.

Mr. Webb admitted to his past as an adolescent goth and told Digiday, "Stephin Merrit once said, 'I could dress in black and read Camus. Smoke clove cigarettes and drink vermouth like I was 17.' HOW DID HE KNOW?"

Well, that's a tough act to follow. And unfortunately, the rest of the execs on this list wind up looking a bit boring, though apparently AKQA chief creative officer Rei Inamoto attended a Swiss boarding school.

Sadly Digiday skimped out on our favorite blast from the past: Jack Dorsey's oh-so-punk-rock nose ring. Dude cannot stop talking about that thing.

(h/t Business Insider)

Naptime!

Sundancing in the Dark South by Southwest is basically right around the corner, but it seems several techies needed a break before March offers the excuse for a tax-deductible trip to Austin. Investor Scooter Braun is be there (for obvious reasons), as is VHX cofounder Casey Pugh, ABC News's Maya Baratz, onetime Myspace prez Jason Hirschhorn, and Thrillist cofounder Ben Lerer. Judging from Mr. Lerer's Instagram, Gary Vaynerchuk is also along for the ride.

Startups are taking advantage of the festival's halo of hipness. The creatives at Kickstarter have devoted a page to Sundance entrants funded on the platform, and cofounder Yancey Strickler says he'll be in attendance. Uber will be there--and handing out hot chocolate. "All you have to do is tap the Uber app and we will come wherever you are to deliver sweet salvation from the epic cold," the company promises. Not to mention helping sooth the pain of Uber's high fares.

Two of the cast members of "Start-ups: Silicon Valley," Hermione Way and Marcus Lovingood, are in Park City and hosting something called Hollywood Meets Silicon Valley. In case you'd like a reminder of why people sell out for reality TV, here is the view from their window, as tweeted by Mr. Lovingood:

Popcorny Lest anyone get the idea Mr. Lerer is all high-minded indie films, all the the time, we'd like to point out this little admission via Twitter: "I sorta want to see Hansel & Gretel Witch Hunters (I understand this makes me a stupid and bad person)."

Don't Kiss, Do Tell Speaking of Ms. Way, it seems she's still a tad confused by the concept of "discretion." To recap: Earlier this month, she was caught in a hottub on Necker Island with several people, including her host Sir Richard Branson and One Direction's Harry Styles, fresh off his breakup with Taylor Swift. Naturally, at least one tab came calling, checkbook at the ready, but Ms. Way turned the offer down. She explained in a lengthy Facebook note that she couldn't bring herself to violate the privacy of her fellow guests on Necker Island, who were very high profile, you see.

Well, it seems Ms. Way has decided releasing just a few more details won't hurt. She's now written a piece about her week-long visit for the Next Web, promoted on her Facebook with the teasing title, "What really happened on Necker." Did she mention the quality time spent with famous entrepreneur Richard Branson?

The week was jam-packed with activities on Necker including morning tennis tournaments with Richard Branson, kite races to Anagada and yacht racing.

Has anyone ever been this smug about not making out with a pop star?

Corrections for $2,000, Alex? Foursquare made its third appearance on “Jeopardy,” this week. According to cofounder Dennis Crowley’s Instagram of the blessed event, the app-savvy woman guessed correctly and went on to win $40,000 that night. As Mr. Crowley pointed out, Alex Trebek’s prompt was actually 1 billion check-ins behind Foursquare’s current totals. “Gowalla,” one Instagram commenter guessed facetiously--name-checking the Foursquare competitor that was acquired by Facebook and then shuttered last year. Considering the recent PrivCo report that Foursquare will be acquired for less than it raised by the end of 2013, you might want to watch the schadenfreude.

Now You Know "What is the plural of Sex on a Beach?" angel investor and Tumblrer Rick Webb recently wondered aloud to himself on Twitter (as one does). Luckily, GroupMe cofounder Steve Martocci was ready with a riposte: "It is plural, masterbate on the beach is the singular." And there you have it.

GIF Out of Here Buzzfeed is hiring an intern to run the company Tumblr. In keeping with the tech world's slouch toward goofy-ass job listings, the announcement asks, "Can you make an animated GIF of Joe Biden drinking a beer with a red panda?" If so, running Buzzfeed's Tumblr might be literally the only job in the world for which you are ideally suited, you crazy diamond.

Sartorial Corner Don’t get it twisted: In the wake of Michelle Obama’s bold new haircut, AllThingsD’s scoop mistress general Kara Swisher would like everyone to be aware that she, Kara Swisher, does not have bangs. “Side sweep. Never bangs, despite my mother’s best efforts at various D conferences where she got hairdresser under her thumb,” she tweeted in response to someone who suggested otherwise.

Who are you gonna believe, the fine-feathered Ms. Swisher or your lying eyes?

LONGREADS

Ultra-Orthodox Jews Take a Hard Line on the Internet at Rally of 40,000 Men (And Me) In which our intrepid reporter sneaks into Citi Field in drag. 

Faith, Hope, and Singularity: Entering the Matrix with New York’s Futurist Set It's the end of the world as we know it, and they feel fine.

The Battle Over Revenge Porn: Can Hunter Moore, the Web’s Vilest Entrepreneur, Be Stopped? Victims and hackers are on the case.

Meet Betabeat's 2012 Tech Insurgents Ambiable agitator Anil Dash, Tumblr's Mad Man Rick Webb, and the merry pranksters of OkFocus.

Jonah Peretti’s Meme Streak Making viral happen inside the factory at BuzzFeed.

THE YEAR IN HEADLINES

Uber Bulldozes Its Way into New York City's Taxi Market Before all the bureaucratic setbacks, CEO Travis Kalanick revealed his grand plan.

Flash Dance! Luxury Flash Sales Sites Regroup After Layoffs Can Gilt Groupe cross the IPO finish line without scuffing the lacquer on its Louboutins?

How to Avoid Being Pushed Out of the Company You Founded Insiders dish on Naveen Selvadurai's defoundering.

Records Point to Credit Card Fraud by Silicon Swindler Shirley Hornstein She used her friend's credit card to buy a plane ticket in her name. Twice. 

Investors Wonder About the Future of TechStars New York Will TechStars New York maintain its prominence?

OP-EDS

We Need to Make Tech Uncool Again A call to arms for the idealistic nerd in us all.

Friends Investing in Friends: When It Comes to Startups, Is the Fix Already In? Is Startupland an insider’s game?

Everything You Ever Wanted to Know About Why We’re Definitely in a Bubble The social media bubble is real, and it's spectacular.   

Social Media Companies Have Absolutely No Idea How to Handle the Gaza Conflict War in the time of social graphs.

Area Blogger Worried People Will Think Reality Show Is Real A little perspective on Bravo's version of Silicon Valley.

TINY GEMS

Diary of Two Snapchat Addicts We just can't help ourselves.

Google Says ‘Gchat’ Is Not a Word Ubiquitous noun/verb is totally unofficial.

What Y Combinator Startups Actually Do, Based on Their (Unpronounceable) Names Zapier: Birchbox for swords?

Tortoise & Blonde Thought ‘We Want To Sit On Your Face’ Was a Good Idea for a Slogan "This was a family decision."

In Which We Went to Bravo’s Casting Call for the Real Wantrepreneurs of Silicon Alley The first tech party where someone tried to yank up our skirt! 

Mr. Webb

The Undercover Ad Man

Of all the “if you build it, they will come,” social media platforms like Facebook and Twitter, Tumblr seemed the most advertising-averse. Floppy-haired founder David Karp memorably betrayed a visceral distaste for the stuff. It “really turns our stomachs,” he said in 2010, following that up with a vow not to become “wildly profitable” by slapping an AdSense ad on the otherwise elegant dashboard of all 80 million Tumblr blogs. But it seems as though the microblogging site’s methodical approach toward making money has paid off—thanks in part to guidance from Rick Webb, a 20-year veteran of the ad industry and co-founder of digital consultancy Barbarian Group, who was attracted to Tumblr for its aversion to the “crap” ads that permeate the web.

Tumblr, founded in 2007, released its first paid products (Radar and Spotlight) earlier this year, which offered, “exactly what people wanted, the ability to amplify the message to a larger audience—but they hadn’t built a business around it,” he said.

Not long after Mr. Webb’s arrival, Mr. Karp was showing up on Advertising Week panels next to reps from Pepsi, convincingly crowing about the “brave new world” his platform offered for “native” ads—Silicon Alley’s new favorite synergy. (Unlike intrusive interstitials or annoying banners, native ads help brands capture users’ attention by forcing them to act like any other publisher and create content worthy of getting passed around.) “All we do is ask for your birthday,” said Mr. Webb. “We don’t sell ads against you getting a divorce or getting engaged; we’re trying to do it without selling the soul.”

And unlike the fall 2011 Fashion Week flameout, in which brands eager to advertise on Tumblr were turned off by the dearth of ways to measure the effectiveness of their efforts, Tumblr now has analytics options. One is an in-house service that shows off the impact brands can get from ad-spend metrics—like how long your post lives before it stops getting reblogged, which the company is eager to show off. Union Metrics, which offers a similar service for Twitter, has also licensed Tumblr’s firehose of data. Its service, which is currently in beta, helps brands capitalize on where conversations are happening with their product and influence pick-up.

During Mr. Webb’s short tenure, Tumblr hired its first global head of sales, poaching Groupon’s senior vice president of sales Lee Brown. Listed beneath the site’s many job openings for engineers, you now see postings seeking “evangelists” in ad-friendly categories like consumer electronics and home decor. “We’ve had people come up to us like, ‘Don’t ever put ads on the platform!’ Well, we must be doing it right, because we already do,” he said.

As for Mr. Karp’s infamous queasiness, Mr. Webb said that, as a product guy, “David was speaking as individual who uses the internet and watches TV. Every once in a while, one of the TV ads surprises and delights you. How often does that happen on the internet?” Part of the reason, he went on to explain, is that the $50 billion in brand advertising on TV “is not moving over” to the internet, where it’s still direct advertising. But in a way, Tumblr’s insistence that advertisers go native and use the same tools as users—eschewing invasive behavioral advertising or geotargeting—has helped attract big clients like Adidas. Consumer packaged goods and automobile companies are also coming onboard, making Tumblr suddenly feel up to the size of its $800 valuation.

Right now, noted Mr. Webb, it’s “only really appropriate for big brand advertisers looking for a large demographic. Can we ever just buy America? Can we ever just buy Brazil? That is probably a thing they would like to do.”

Next: Deborah Estrin, CornellNYC Tech: the Entrepreneurial Egghead

Back to the beginning.

(Illustration: Robert Grossman)

Jack Dorsey, cofounder of Twitter and Square, recently tried to disabuse the tech industry of its infatuation with the word ‘disruption.’ “We don’t want ‘disruption,’ where we just move things around. We want a direction. We want a purpose,” he said on stage at TechCrunch Disrupt, humbly suggesting the biannual conference change its name. But it’s more than just semantics. The tech sector’s claim to produce world-changing products and services often gets drowned out in a chorus of me-too companies solving problems no one ever complained about. The umpteenth nightlife-recommendations tool or empty real-time dating app can obscure the whirr of a nascent robotics sector in Manhattan or a futuristic, even revolutionary, experiment in manufacturing in Queens.

However, there are insurgents in our midst, quietly pushing the city closer to Mayor Bloomberg’s goal of "reclaiming our title as the world capital of technological innovation." To identify those mindful mutineers, we tried to look beyond established leaders (see: Wilson, Fred) to the next class of innovators, who are forcing corporations to come to terms with the mobile revolution or shepherding startups toward making money without selling out. We found investors, developers, educators and agitators. We identified pioneering companies that set off the self-education craze (you’re welcome, Peter Thiel). We spotted a trio of provocateurs in Long Island City and an open-source radical on Roosevelt Island. Looking at this constellation of entrepreneurs, you can start to see the outline of New York’s tech future taking shape.

Valery Komissarova, Grishin Robotics: Rallying the Robots

Phineas Barnes, First Round Capital: the Bottom-Up Investor

Marleen Vogelaar, Shapeways: the Manufacturing Maven 

Anil Dash, Activate and ThinkUp: Amiable Agitator

Alex Taub and Michael Schonfeld, Dwolla: The Credit Card Killers

Mike Karnjanaprakorn, Skillshare: The Principal of New York

Rick Webb, Tumblr: The Undercover Ad Man

Deborah Estrin, CornellNYC Tech: the Entrepreneurial Egghead

Ryder Ripps, Jonathan Vingiano and Jules LaPlace, OKFocus: The Merry Pranksters

Daniel Loeb, Third Point LLC: the Poison Pen

This story appeared on the cover of the November 14, 2012 issue of The New York Observer. 

The scene at Secret Clubhouse. (Photo: Tumblr)

Late last week, Betabeat took a two-hour trip via interborough bus to Secret Clubhouse, a newly launched Williamsburg coworking spot. The shared office (decorated with vintage Apples and a motley assortment of posters) was packed with techies typing away on the laptops, but the vibe was no more panicked than that of an undergraduate library in the earliest days of reading period.

Nearby, permanent residents Small Girls PR were hashing out wardrobing details for the upcoming “Tech Homecoming” fundraiser and upending their desks in search of a missing checkbook. The occasional burst of laughter filtered from the back, and every so often someone would look up with a piece of news gleaned from Twitter. But quiet largely reigned.

The only obvious sign of extraordinary circumstances was a sign on the wall, handwritten grade-school-binder style: “Sandy Shelter,” it said, with a Wifi login and the message of support, “we <3 u.”

Off to one side we found Jessica Lawrence, managing director of New York Tech Meetup, whose jaunty scarf and turquoise cardigan weren’t quite enough to mask an uncharacteristic wanness. Crouched over her laptop, she was crafting an update for volunteers, letting them know what would be the most helpful in the next 24 to 48 hours. Across the desk, her partner in community organizing, Noel Hidalgo, was working away while encased in a gigantic parka. It was quite clear neither had had a moment of downtime since the storm hit.

The wrath of Sandy inspired an outpouring of civic feeling and desire to lend a hand. The trick was directing that energy toward productive results. Can Ruby on Rails really help the wreckage in the Far Rockways? That's what Ms. Lawrence and Mr. Hidalgo were attempting to do from their desk, the battlefield headquarters of New York Tech Responds. In concert with Tony Bacigalupo, cofounder of Soho-based New Work City, the triumvirate had spent the week coordinating the closest thing to an official New York tech relief effort.

In the last week, they've dispatched their army of volunteers for a variety of tasks, such as helping a flooded Chelsea gallery with data recovery, lending the aid platform Recovers.org in handling a deluge of traffic and assisting with relocated polling places. This week, they stand ready to help businesses affected by the storm, whether it's extracting data from soaked servers, setting up public Wifi or restoring point of sale systems.

Spend time around the city’s entrepreneurs when they’re in hustle mode, and it’s common to hear the term “disruption." Every other startup seems ready to shake the foundations of education, medicine, government or something similarly pie in the sky. It sometimes seems the original negative connotation has worn completely away. But there are few things quite like a hurricane to knock a sense of perspective into even the most wildly optimistic.

And so as the hurricane approached, tech scenesters sprang into action. Foursquare founder Dennis Crowley touted the Bowery Mission and offered to haul East Villagers’ donations in his car. Etsy CEO Chad Dickerson took his blog and encouraged everyone to support Occupy Sandy. Zynga GM Dan Porter trekked out to the Rockaways, then returned to write a Business Insider op-ed encouraging coders to develop disaster recovery tools. “We are thrilled with how many tech companies, large and small, have reached out to ask how they can help those in need,” Rachel Haot, the city's Chief Digital Officer, told Betabeat.

But Ms. Lawence, Mr. Bacigalupo and Mr. Hidalgo have been the most visible in their attempts to help, emerging as a three-person clearinghouse for techie efforts.

“We’ve been in contact, I think, with pretty much every major government entity and recovery organization"--the Red Cross, FEMA, the Board of Elections--“just trying to make sure that everybody knows that we have this group of people that are willing to help,” said Ms. Lawrence. Their small army numbers somewhere north of seven hundred, a representative cross section of the meetup’s 28,000 members.

Typically, the New York Tech Meetup has a different set of priorities, which revolve around advocating for and serving the interests of its members. Most famous for hosting packed demo nights at NYU’s Skirball Center, the group’s last big public push was in January, when Ms. Lawrence and her compatriots helped scramble the jets to defeat the Stop Online Piracy Act, objectionable primarily for the onerous enforcement burdens it would have placed on Internet startups. But as Hurricane Sandy bore down on the city, suddenly their horizons expanded.

It began with a note to the meetup’s members, announcing they’d be happy to help anyone trying to get the word out about cancelled or postponed events. But when she and chairman Andrew Rasiej remembered they had in their hands a powerful megaphone, Ms. Lawrence recruited Mr. Bacigalupo (initially for his help designing signup sheet, but he’s been at it ever since) and Mr. Hildalgo, whose previous projects include serving as a public-private liaison include launching NYSenate.gov while serving as Director of Technology Innovation. They’ve been at it ever since, a flurry of conference calls and Skype chats and Google Docs.

If that makes it sound like their results are a little tough to pinpoint, Mr. Bacigalupo says they've ended up spending more time helping those coordinating relief efforts, rather than the victims themselves. “While it’s hard to quantify, I would say I have good reason to believe that our efforts have helped make other efforts more efficient and more effective than they would have if we had done nothing,” he told Betabeat.

Perhaps the most visible manifestation of the post-hurricane outpouring of good feeling has been Sandy Coworking, an effort to make desks and Wifi available for anyone who need a place to be productive. Almost as soon as the clouds parted, anyone with a working office was offering to host the displaced. Staffers from Buzzfeed took up residence in Heart’s cafeteria. Kickstarter moved in with Boxee. Venture capitalist Charlie O’Donnell suggested the hashtag #sandycoworking for those seeking and offering space; as the offers began flying fast and furious on Twitter, Mr. Hidalgo hacked out a platform for anyone to list what they had.

But if the crowd at Secret Clubhouse was any indication, the coworking effort was mostly lifesaver for tech companies--and that includes Gawker. Founder Rick Webb opened his doors almost as soon as the power went out south of Flatiron. Employees from Tumblr (where he’s helping build out a sales and marketing operation) and Foursquare (a company in which he invested). Gawker had filled in empty desks, while Gizmodo had annexed the conference room. By the time Mr. Hidalgo had arrived, Nick Denton was already holding court in the back.

Ms. Lawrence admitted that coworking isn't exactly a familiar concept outside of the confines of Silicon Alley. "But the cool thing is that after this experience they’re probably all going to know what coworking is a little bit more," she said. "Whether they’ve meant to or not, a lot of them have probably ended up coworking.” Even Bloomberg-terminal-addicted Wall Streeters learned to work from home.

But as reports of restored power in downtown Manhattan rippled through the room in Williamsburg, we couldn't help but wonder how sustainable this sudden flowering of civic feeling really was. Mr. Bacigalupo thinks the last week was a turning point: "This was the time, in my mind, when the tech community stepped out of its own bubble and stepped up in a huge way to help this city as a whole,” he said. “This was the tech community doing something that wasn’t about advocating for the technology community.”

Ms. Lawrence said they're looking into whether volunteers would make a long-term commitment to serving as a kind of tech corps--a crew of first responders with very specific skills. And after initially proposing a hackathon to address the issues raised by the storm, New York Tech Responds decided it made more sense to partner with events already planned, providing them suggestions.

Of course, the rapid-fire pace of a hackathon doesn't allow for the time to produce finely-honed tools for FEMA or develop a smarter electrical grid that’s less vulnerable to natural disasters.

It may be that the best possible outcome is simply a reminder that the world has bigger problems than shilling virtual goods. Back on the grind, Anil Dash tweeted he was finding it “very jarring to be back at work at a desk with power & internet, looking at a bunch of tech crap that seems totally meaningless.” What better way to motivate a free market capitalist to spend her spare time construct a donation management solution for Goodwill–especially as images from Staten Island and the Rockaways fade from the front pages? After all, peer pressure worked for voting.

Tumblr founder David Karp. (Photo: wikipedia.org)

One of the great frustrations of Tumblr has long been the unavailability of rather basic metrics--a major problem for a company that wants to be a hub for the world's creators and brands, as well as a sophisticated advertising option. (It's hard to get marketers to do much without offering access to some sweet, sweet ROI metrics.)

Soon, however, all those brands with purdy pages will have access to a real-deal analytics dashboard. That is, if they work with Tumblr's preferred partner. In an announcement released today, the site has crowned Union Metrics as its preferred analytics provider.  

UPDATED TO ADD: We should clarify that brands participating in the Sponsor program already have access to a metrics dashboard that is reportedly pretty powerful. The partnership with Union Metrics opens an option up to the rest of us, from mere analytics-obsessed bloggers to brands who'd prefer to forgo the sponsorship offering.

Included in the statement is an enthusiastic endorsement from Tumblr revenue and marketing man (and former Betabeat columnist!) Rick Webb:

"We are psyched to endorse and recommend Union Metrics to brands and marketers so they can better measure their success on the network. No one has built anything similar and the intel the tool picks up on brands is amazing. This is a great new analytics product for brands on Tumblr, and we can’t wait to see what comes from this data."

Included in Union Metrics' offering:

• Powerful filtering capabilities that facilitate comprehensive tracking of any blog or topic
• Summary analytics showing overall engagement levels and trends over time
• Identification of influential contributors and curators
• Analysis of posts and tags to surface most popular content
• Individual post engagement analysis, including interactions over time, amplification trends and a reblog tree visualization, which clearly shows how posts spread through Tumblr

Finally, you can understand what your popularity among Bronies means for your brand awareness.

Mr. Williams, Mr. Peretti and Mr. Miller.

The elevators to the BuzzFeed office are magnificently slow. Each fits about six people comfortably, and they trundle and groan up to the 11th floor, where the company's ops, tech and marketing people sit. "Considering how fast the company moves, it's amazing how slow its elevators are," quipped one dapperly dressed man as we all awkwardly waited for the doors to open.

Betabeat was visiting the BuzzFeed office for the first time to attend a real-life roundtable. Hosted by Branch cofounder Josh Miller, the event included beers and mingling among some of New York's prolific tech reporters and entrepreneurs, as well as a discussion with Twitter cofounder Ev Williams and BuzzFeed's own cofounder Jonah Peretti.

Before the group settled into white plastic chairs in an event-type space outside the kitchen, Betabeat spotted several tech scene staples, like Paul Ford, Anil Dash and Rick Webb. Scrollkit's Cody Brown and Kate Ray, along with Digg CTO Michael Young, made an appearance. Reporters and writers were also out in full force: Pando Daily's Erin Griffith, The Awl's Choire Sicha and Business Insider's Alyson Shontell all nabbed seats towards the front to listen to the talk. TechCrunch coeditor Alexia Tsotsis sauntered in towards the end in a silver sparkly top.

The event was formatted like a real-life Branch, a conversation platform popular among the tech elite that seeks to "empower people to talk about the world around them." Mr. Miller, who has established himself as a prominent NYC tech entrepreneur in the year since he dropped out of Princeton, proved a confident interviewer, though it probably helped that he is close with Mr. Williams and Mr. Peretti, who both advise him on Branch. The trio sat in tall chairs, not unlike the ones you'd see scattered around a Hollywood set, with the Branch banner hanging behind them.

Soon into the talk, it became clear that Mr. Peretti and Mr. Williams--though clearly comfortable with each other--hold a handful of opposing views. Mr. Peretti is disarming and affable, while Mr. Williams is decidedly more staid, his humor held closer to the vest. It was an interesting juxtaposition to see two successful serial entrepreneurs with visibly different interviewing styles forced to come together and interact for a crowd.

Mr. Williams' new project is Medium, which is currently open to a few select users in private beta. Medium allows them to create valuable content that is categorized not by how new it is, but by how good it is.

"We want to get away from the obsession with newness," Mr. Williams said. "I think an obsession with the new overvalues its importance. Whatever you're looking at in Medium, you see the best stuff first, not the new."

Mr. Williams also argued that a person's social circle doesn't validate content or automatically make it interesting. "Valuable content can come from anyone," he emphasized.

Mr. Peretti, whose own website relies heavily on quickly spotting and posting or reframing the new, pointed out that Mr. Williams' distaste for newness is amusing given his history as the cofounder of Twitter.

"Isn't the prioritization of newness all your fault?" he joked. "You're solving a problem you created."

Mr. Williams, for his part, didn't let Mr. Peretti off the hook either.

"I'm not a big fan of aggregating content," he said a little later. The irony of him saying that while sitting in the BuzzFeed office next to Mr. Peretti was not lost on Betabeat.

To be fair, Mr. Peretti does have some rather controversial ideas. For one, he calls the reframing of someone else's scoop a “conceptual scoop,” which is sure to make journalism students bristle. "On social, nobody wants to pass around the rewrite," he argued. Instead, a lot of what BuzzFeed writers do is come up with a new way to frame an existing scoop. He gave the example of a collection of cat pictures, which doesn't mean anything given the Internet's scope of cat pictures. But when framed as "Bet You Can't Get Through This Post Without Awwing," old material becomes new.

Whether you think that counts as an actual scoop probably depends on how much you value breaking news.

Towards the end of the discussion, the topic turned to Twitter and how it serves as a vehicle--"like a railroad," Mr. Peretti emphasized--to deliver news and information. Mr. Williams agreed, but with a caveat; "Most tweets don't have links," he said, and so it's come to serve another niche. "I think it's the best standalone platform for witticisms," he added, making the audience chuckle. "That's a funny word," Mr. Peretti said, sounding ever-more like the pleasantly silly "accidental" entrepreneur he is.

As BuzzFeed first reported (shocker!), Mr. Williams also suggested that a new way to measure a Twitter user's influence could be in the works. Because many Twitter followers are actually fake, perhaps your follower count isn't an accurate way to gauge your influence. Instead, he stated, "The dream metric is how many people saw your tweet."

As Twitter continues to revoke API access and court Hollywood bigwigs, we won't hold our breath: seems like the company has some more serious issues on its hands these days.

Even though both Mr. Peretti and Mr. Williams have impressive track records as serial entrepreneurs, towards the end of the discussion both expressed that running a company is still a lot of work.

"It's still hard," said Mr. Williams. "There's always new stuff to screw up."

Mr. Webb

Bubbles bubbles bubbles! The talk continues. Last week the anti-bubble camp was in the ascendency. First we had a massive bubble debate on Branch.com (disclosure: I am an investor in Branch), featuring some of the best minds on the internet: Anil Dash, Dave McClure, Paul Kedrosky, Chris Sacca, Michael Arrington, MG Seigler and more. The rough consensus? No bubble.

In wrapping up the Branch debate, Seigler pointed to First Round Capital’s Josh Kopelman, and his hilarious bubble post - from 2007, no less - mocking those who continuously cry bubble, and failing to grasp the transformational power of the internet. A fair point.

Next we had Business Insider Henry Blodget’s presentation State of Startups 2012 presentation, subtitled “No, it’s not a bubble.” Many charts, graphs and points followed laying out why the bubble doesn’t exist.

I must confess, however, I’m in the pro-bubble camp, and while reading the Branch debate, I found myself jumping up and down with counter arguments on why we actually are in a bubble. And, since I’ve taken a two week vacation from this column, I figured I’d come back with a vengeance, and cogently lay out all the arguments and counter arguments.

I’ll start off by promising the anti-bubble posse that I will barely mention Instagram at all, and when I do, it will be only in a tangental manner. I promise.

What is a bubble?

The definition of a bubble is an important part of this debate. Chris Dixon expresses justified annoyance at this when he says “A bubble is a financial event. I don't understand people who try to discuss it without bringing financial evidence into the picture.” This is a valid point.

Economists generally agree that three things must be present for a bubble to exist: (1) high trading volumes, (2) prices that are different from their “intrinsic values,” and (3) that said difference between prices and intrinsic value must be considerable.

The Wall Street Journal puts it thusly: “Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet.”

Built into that definition are our key three items: disagreement would indicate considerable variance in price, and a big economic development implies high trading volumes. "The internet" or "the railroads" are big economic events. And because they are big events, there will be a lot of trading around them.

What a bubble is not

Just as important is what a bubble is not. A bubble doesn’t have to be in the stock market. Tulip Mania, the first bubble, had nothing to do with stocks. Subsequent examples abound. Many of the anti-bubble defenders base their arguments on metrics around the publicly-traded tech companies, talking about their P/E ratios for example. The P/E ratios of publicly-traded internet companies, such as LinkedIn, are within normal parameters right now. This, however, has nothing to do with "ALL" Internet companies, only the ones that are publicly-traded. No one realistically believes the bubble is in public companies, and the definition of a bubble does not require the bubble to be in publicly-traded companies.  Any arguments against a bubble that solely rely on P/E ratios of public companies aren't really relevant and indeed help obscure the true picture.

Additionally, a bubble is not tied to the economy as a whole. Joseph Schumpeter had a notorious aversion to looking at large economic trends when trying to discern what was really going on. He said “It is, therefore, misleading to reason on aggregative equilibrium as if it displayed the factors which initiate change and as if disturbance in the economic system as a whole could arise only from those aggregates.” (Look to p 36 here).

Economist Carlota Perez, something of a hero of Union Square Venture’s Fred Wilson, takes the point further, stating that bubbles have nothing to do with the economy as a whole. “It is not even likely that the turbulent process by which new paradigms are assimilated should lead to regular up an down trends in the economy as a whole.” (Page 36, of her seminal work Technical Revolutions and Financial Capital).

These are both important points, as many of the arguments against a bubble point to metrics from the stock market as evidence for the lack of bubble. Fact is, economists don’t care whether or not a bubble is in the stock market or trends with or against the larger economy.

It should also be said that bubbles have nothing to do with many of the things we hear about - anecdotal evidence of “founder friendly” terms, bankers going into tech, a bajillion ripoff tech companies managing to get funding, lavish parties, kid founders, etc.

Why we’re in a bubble

So, then, it shouldn’t be that hard to see if we’re in a bubble, right? If our three criteria our met, we’re in one. Bob’s your uncle.

First, I’d posit that this is not a “dot com” bubble. I believe the bubble we’re in is a social/mobile bubble. I say this for a number of reasons: social/mobile companies have higher valuations than many of the other tech companies out there, and they garner considerably more press. It’s easy for us to think of the entire dot com sector, thanks to the previous dot com bubble, but in fact we have several sub-markets now. When Chris Dixon says “Instagram aside, there is SUBSTANTIAL revenue and even profits being generated by a much larger # of companies than ever before,” he is generally mixing all tech companies together. There are indeed several tech companies producing substantial revenue. But what percentage of social/mobile companies are?

Let’s look at those three pillars of the definition:

Trade is at high volumes
Social mobile companies are proliferating. Many are getting invested in. TONS of them. We all know this. We see new deals every day on Techcrunch, VentureBeat, Betabeat, etc. Perusing the Branch discussion, everyone agrees there’s some “froth” at the early stages for “certain” types of companies (i.e., social/mobile).

But all this is, of course, subjective. So let’s look at Blodget’s empirical data. Despite some blurring at the beginning, in his Anti-Bubble presentation, Blodget points out VC investment in tech is increasing, now, even in a down economy.

Prices are “considerably at variance to intrinsic values.”
So let’s turn our attention to pricing. There are two parts of this equation: (1) considerably at variance and (2) intrinsic values. Let’s go one by one.

(1) The very existence of a plethora of heated discussions on bubbles should be enough evidence that investors profoundly disagree. The tepid IPO market vs. the number of companies aiming to IPO, along with their substantial number of backers wishing for the same thing, should indicate two parties who substantially disagree on value, considerably.

(2) “Intrinsic value,” of course, is a bit more complicated. This has always been the sticking point for any educated bubble conversation. The tech sector has produced myriad companies that operated for years without revenue that eventually went blockbuster: Google, Amazon, Facebook, etc. Revenue, then, is only part of the equation. The trick is to figure out what else matters.

Intrinsic Value is defined by economists as the current and projected future value, marked to the present, of an asset. It is the “actual” value vs. the “market” value (and, thus, Facebook’s $1B purchase of Instagram is moot. That is a market value). This also means that if revenues are currently at zero, but future revenues are projected to be high, the current valuation is positive. So, then, despite zero present revenues, a company can have intrinsic value.

Opinions vary, however, on how to calculate this intrinsic value, since it relies solely on unknown future revenue. Is it the next instagram? Or a failure? It could be either. Mark Andreessen suggests factoring in the likelihood of the big win, thus adding a percentage multiplier into your calculations.

So let’s do that.

It is my position that many, if not all, of these companies are projected to earn their revenue from advertising. There are exceptions, like Zynga, but by and large, most of these companies are expected to make their money off of advertising. I have written extensively in the past about the finite size of the global ad market, and how we can only support 9 more google-sized companies.

There are about 3,500 startups funded every year. Delve into the stats at that link and you’ll see 1,000 of them are new startups in internet or media. The online ad market in the US is about $40B. The math there is $40 million potential for each new startup (you could complicate this by saying 5,000 startups over, say, five years, and $200 billion over the same span, but the math is the same.) And this ignores the previous contenders. What, really, is the statistical chance that any new startup will capture a substantial portion of that market? Given the massive barriers to entry via the need for building a substantial user base, and the large, incumbent players who already capture that ad revenue (Google is not going to go away), statistically, the answer has to be that It is approaching zero.

That should be the end of the argument from a mathematical perspective. The “rational” future “actual” value is the potential future value multiplied by its likelihood. I contend that the potential is far lower than stated, and the likelihood is far lower than stated as well. It’s not a $40 billion times 10%, it’s $40 million times .01%.

So there we have it. Mathematically, prices are out of whack with intrinsic values. And there is considerable disagreement, i.e. “considerable variance.”

There really shouldn’t be any thing else to the argument. However, I concede that all of this, while based in data, statistics and fact, is still based on my opinions of likelihood. There is still some guesswork.

Let’s look at the counter arguments.

The Arguments against it being a bubble:

There are a bunch. Let’s go through them one by one:

“This time it’s different”
There is a strange paradox going on with some observers contending that no one’s saying that this time things are different, while actually, this time, people are saying it’s different. Henry Blodget just gave us the best example of this. “Is everyone justifying today’s prices by saying ‘this time it’s different?’” he asks? “No.” And yet, right after saying that no one was saying ‘it’s different this time,” 15 slides later, Blodget is outlining why it’s different this time. It’s kind of awesome.

Paradox aside, Blodget’s arguments for why it’s different are the same as many others in the anti bubble camp: that way more people use the internet than during the dotcom boom, so the valuations are more realistic. That we are undergoing a social revolution, and that we are undergoing a mobile revolution. All of these are true. All of these are irrelevant to the existence of a bubble. They are arguments on one side of the “considerable variance” debate. Personally, I hope they are true. But we are sticking to the actual definition of a bubble here, and the fact that it’s different is moot. Indeed, both Schumpeter’s creative destruction and Peres’s technical revolutions, imply that many bubbles do result in something different, in a leap forward. And yet, the bubbles still happen, as do their commensurate crashes.

"Bubbles can be good.”
This is true. Bubbles can be good. They are still bubbles. The benefit of bubbles are moot to whether or not a bubble is happening. “Are we asking if consumer web/app technology's impact and influence on mainstream culture and ordinary people will decrease? I can't imagine so,” Anil Dash commented on Branch. It is an important point. Bubbles do destroy value, but good things can come out of them. This is probably more about the internal morality debates that many of us in tech have - are we helping the economy or hurting it? We may well be helping it, but it will still be a bubble, and someone else will bear the cost.

Nowhere in the definition of a bubble does social good enter into the equation. Carlota Peres predicates her whole seminal book on the fact that bubbles drive all major innovations. They do, however, come with costs, which she outlines in gory, devastating detail.

"Prices are in line with value"
The Public Markets are Fine, For now. Investor Chris Sacca colorfully sums it up: “As you guys know, I am also a very active late stage investor. Business on that end is entirely different than in the 90s when I first got to the Valley. Facebook, Twitter, LinkedIn, etc are all real businesses with CAGRs that would make a hockey stick blush and reach for the Viagra.”

Blodget points out that the IPO market is open, but it is far from robust. This is true. The bubble is not in public markets.

Yet many bubble deniers continue to use public market data to defend the private markets. Investor Chris Dixon does so in the Branch debate by saying, “In particular, in every bubble in the past, P/E ratios of securities bought and sold by non-professional investors were way higher than the historical average. During the dot-com bubble and housing bubble, P/E's were over 40…. Current P/Es in tech are a reasonable 17 (historical average for S&P is 15).” Blodget uses Apple as an example, showing that it’s P/E ratio is a reasonable 15.

Mark Andreessen echoed these sentiments last week when he said “If we're in a bubble, it's the weirdest bubble I've ever seen where everyone hates everything. If you check tech stocks that went public recently, it's nose down to the ground. We're now 15 years of flat stock market returns. That's a weird bubble.”

And yet public markets are irrelevant unless we’re arguing a narrow bubble of public market tech stocks only, which no one is arguing. It’s a red herring.

Public markets are tight right now partially due to tech stocks doubt, but the main reason for the lack of IPO access is due to larger issues with the recession we are currently in, and slowly working our way out of. This will change.

Previously, I had commented on how as pressure for tech companies to IPO increases , the public market tightness will come under attack. This absolutely came to fruition with the JOBS act, and Blodget as much as gives up the game in his recent presentation in a footnote that says ”The JOBS act could begin to change this. Fingers crossed…”

So let’s move on, then, to where most bubble-believers argue that the bubble is forming, in the private markets. As we’ve said, the hardest part of bubble identification is figuring out whether the prices have decoupled rationally or not. Whether “intrinsic values” are still being considered. Many bubble deniers concede this, such as Chris Dixon, who said of early stage private companies "those have never been valued by VCs on purely financial metrics." This is, of course, true, but could be interpreted to tacitly admit that pricing is not at “intrinsic value.” Of course, things still need to be “considerably at variance” and “high volume” to be a bubble, but this does effectively concede that things are not at intrinsic value.

There exists a large body of work explaining the apparently irrational yet defensibly logical pricing of tech startups - quality of the founder, mobile trends, social trends, competitive funding environment. If you look at something like this Quora thread, you’ll see a lot of talk about normal valuations, with some admissions that they are mainly guesswork. Indeed, it’s comical how many different Quora threads ask the same question in different ways. Poke around. Also often mentioned are whether the founder is still at their job, the quality of the founder, and whether they have a prototype. It’s worth noting that none of these three factors are related to the economic definition of “intrinsic value.” I’m not saying they don’t matter - they’re factors I base my own investment decisions upon - and god knows what ELSE we’re supposed to use. But nonetheless, they are irrelevant to economic theories of bubbles.

Chris Dixon recently conceded that “certain stages of venture valuations do seem over-valued, in particular seed-stage valuations and (less obviously) later stage ‘momentum valuations.’” He explains this by talking about the proliferation of seed stage investors who are investing in what they believe in (I would be one of those) and in the momentum stage by non-inherent-value decisions such as “VC’s who want to be associated with marquee startup names, the desire to catch the next Facebook before it gets too big, and the desire of mega-sized VC funds to “put more money to work.” He counters this by saying that Series A seems under-valued. Dixon rightfully points out that it’s hard to have a public debate about this due to confidentiality. He’s right. So basically Chris is saying there's froth in early stage due to lots of angels (like me) and froth at the late stage because of "momentum" valuations (ie tumblr and foursquare, groupon etc). In the middle, around Series A, he thinks that there's not frothy valuations. He may be right. So can it be a bubble if there's a sober moment in the process from early stage, to series A, to "momentum" valuations? It's an interesting point of view. I do wonder, though, If there's froth before and after sober Series A, however, does it really matter? And for what it's worth, personally, I have seen plenty of froth in Series A as well.

One thing I will cave on. Dixon makes the excellent, eye-opening point that “This doesn’t mean the investors think they will invest and then get some greater fool to invest in the company again. For instance, at the seed stage, intelligent investors are quite aware that they are buying the dream but will need to have numbers to raise a Series A.” I admit I hadn’t thought of that in exactly that way before. Yet if our bubble is in Social Mobile, a world still primarily of light revenue, I wonder what metrics those valuations are based on? Revenue is, after all, the only metric relevant to "intrinsic values." But most Series A rounds I've seen are still very light on revenue. The metrics used to establish value are based on users, who will, hopefully, one day be turned into revenue. Most of those valuations are, in my experience, fairly optimistic about per-user future revenue.

Andreessen’s method of market potential multiplied by likelihood does a good job at addressing these concerns. Though as we’ve seen, interpretations of the numbers can vary widely.  And none of those, however, work in situations like YC’s new “Apply without an idea” program, or the funding of some founders without any idea (i.e. Jakob Lodwick)

I’ll admit that we can’t get anything off the ground if we fund everything at zero or near zero valuations. We have to put a stake in the ground somewhere. But in terms of a strict definition of a bubble, it’s hard to deny that intrinsic value, from an economist’s point of view, hasn’t been thrown out the window.

In a recent controversial (in tech circles) NY Times piece by Nick Bilton, Paul Kedrosky,  an investor and editor for Bloomberg, explained “It serves the interest of the investors who can come up with whatever valuation they want when there are no revenues. Once there is no revenue, there is no science, and it all just becomes finger in the wind valuations.”

Chris Dixon partially affirmed this last week by saying “The argument that sometimes startups get better valuations without revenue is somewhat true.’

In the end, it’s anyone’s guess. Investor Chris Sacca sums up the conundrum on the Branch debate by saying “It's easy to moan about valuation creep on the seed stage deals, and I cringe at some of the entitled attitude I see around these days. However, for all the whining, I will concede that two of my best performing deals ever, Twitter and Instagram, were done at roughly $25mm and $30mm pre respectively. So, what the fuck do I know?”

It’s a mess. It’s a constant debate. But if we can’t know prices are too high, we certainly can’t know that they’re reasonable, and, thus, the defense crumbles.

The “greater fool” inversion.
Bilton, who was on the Branch thread, parries for the bubble believers: “One of the signs of a coming bubble could be seen with the high valuation of start-ups. Viddy at $370 million; Foursquare at $700 million; Pinterest at $1+ Billion. All of these companies, and many others, have very little, if any, revenue. When start-ups reach such high valuations, they are left with only a handful of suitors that can acquire them. If there is no buyer, these companies have to go public, which is where the price-earnings ratios become a problem and confidence can wane.”

To which Michael Arrington shot back “A lack of buyers is an excellent indicator of a not-bubble. The greater fool theory assumes there's always someone dumb enough to pay more.” Apparently because the number of buyers is limited, the greater fool theory is not in play.

I love this. The flaw here is that the whole point of the greater fool theory is that this is true until it’s not. One day the music stops.

Barring that, Bilton is correct: pressure is coming to push these companies public, before their ready (see below), thus, the “greater fool” argument is still in effect.

As an aside, Economists do not currently find the “greater fool” theory to be true, despite such believes being “prevelant among practitioners”

“No one is getting hurt.”
The argument here is that this is just a bunch of rich people gambling, it’s only in the private markets, and no one else is getting hurt. Your mom and dad aren’t going to get hurt.

This is so not true. Public pension funds have always been a massive source of venture funding. Says the Times recently, for example, “By September 2011, retirement systems with more than $1 billion in assets had increased their stakes in real estate, private equity and hedge funds to 19 percent, from 10.7 percent in 2007, according to the Wilshire Trust Universe Comparison Service.” Even in staid Europe, Pensions makes over 10% of the VC funding, The Economist points out.

Your mom and dad can still get hurt. This is not just rich people’s money. Not even close. It may ease our conscience to think that, but it is a lie.

Low costs in early stage startups
Paul Kedrosky made a point in the Branch debate I had not thought of before in terms of bubbles, and it’s an interesting one. “There does seem to be more activity at the early-stage than is justified by outcomes, & it is frequently happening at higher valuations than would seem prudent. Having said that, the costs are low, so, in the same way the Cambrian explosion led to most modern forms of life, cheap speciation (with high die-offs) is an unsurprising ecosystem response to incident energy..”

Basically, yes, values are high relative to intrinsic values, but startups are so cheap now that it doesn’t really matter if a bunch of them die off. Good will be done.

To me, this seems to be a combination of the “bubbles can be good” argument and the “no one is getting hurt” argument. I’ve tackled each individually, and should point out that  both are specifically not relevant to the definition of the bubble, and in aggregate, damage may still be done if capital is being diverted from other, more useful sources. Recall the recent Tweet heard round the world by ex-Facebooker Jeff Hammerbacher, as highlighted in a recent Business Week article that expounds upon this point: “"The best minds of my generation are thinking about how to make people click ads. That sucks."

There you go.

Why I think we are confused.

So what the hell? Seed stage bubble, rationality at Series A, then bubble again in “momentum.” Bubbles can be good. It’s gambling but it’s not. WHY DOES ANY OF THIS MATTER? It is easy to get confused. And here, I think, I would like to introduce some new factors into the debate.

We’re carrying baggage from last time

Many debates refer to “1999 style bubble.” NASDAQ insanity. Billions (Trillions?) of dollars vaporized. Our parent’s savings decimated. The dream of the internet halted. It hangs heavy over all of us. Many of us learned about bubbles for the first time (for my part, dating a Texan in college, my first real world experience, after studying bubbles in college, was the late 1980’s Texan real estate bubble). Much of our understanding of bubbles comes from NASDAQ’s rise and fall. The layoffs. The irrational exuberance. We are attempting to pattern-match.

But what if we are pattern-matching only the trappings of the bubble. We’re trying to avoid repeating our past mistakes. We speak of revenue in companies, though it is economically irrelevant to a bubble. Investor Dave McClure sums this line of thinking up when he says “there is SUBSTANTIAL revenue and even profits being generated by a much larger # of companies than ever before.”

We talk about P/E ratios of public companies. Ditto. We talk about how the economy as a whole is depressed, NASDAQ isn’t rising to the stratosphere. Though we felt and remember these things viscerally, they are all irrelevant to economic theory. We are addressing old criticisms when debating a current topic.

We also use the word “Bubble” to talk about all the cultural ridiculousness from the dot com era. Stupid parties. Bankers as tech moguls. 12-year-old founders. There was a lot of silliness in the dotcom era, and some of that silliness is happening now. This is neither evidence of a bubble or evidence against. But boy, does it bring back bad memories.

When we debate what’s actually going on, now, however, we must strive to remove all of that from our thinking.

Some people have an interest in milking it

I don’t want to spend too much time on this one. It’s tacky. And I don’t want to attack anyone personally. But remember: many people, including myself, are heavily invested in this trajectory continuing for a good long while, and getting a ton of these companies to IPO. Would a newspaper man be impartial talking about whether the newspapers are dying or not? Would a screen printer have an impartial opinion on desktop publishing? I’m not interested in going ad hominem, but there exists a substantial economic body of work around economic signaling and markets.

It’s early in the bubble

In his recent presentation, the multitude of slides Blodget shows of industry trends now vs. the dotcom bubble look, on first blush, as if they are different. The massive, spiraling peak we see in any chart of a bubble, ex post facto, hasn’t occurred yet. Yet if you look at 1997-1999 and compare it to 2010-2012, they are eerily similar. Bubbles start, grow, peak, and bust. That whole cycle is a bubble, regardless of where you are on it. Is this bubble early? Late? I’d probably wager we’re maybe a year or two in and it’ll peak in 2 or 3 more. But it doesn’t matter. That whole journey is the bubble. And I believe we’re in it now.

Words, words, words.

You’ll notice a lot of people saying “Boom” lately. Blodget, after saying there’s no bubble, throws in the word “boom” at the end of his presentation. MG Seigler starts the Branch.com conversation with “It's boom times, yes.”

In economics, a bubble consists of a boom, and then a bust. That’s it. Boom sounds nice, boom times, boom boom boom. Booms come with busts. Within a specific industry, booms plus bust equals bubble. End of story as far as economics go.

“Boom times,” the fun one, conjuring images of the wild rest or a factory towns or smiling Wired covers, are associated with the economy as a whole. These booms also go bust, but it’s a longer economic cycle than a bubble, so it sounds less threatening (though paradoxically potentially far more damaging). It’s semantics, and irrelevant to the larger conversation.

There’s not a lot we can do about it

This is, basically, true. There’s probably not much we can do about it, except for talk about it, hence, the endless debate. Matthew Ingram from GigaOm says on the Branch thread “But is cynical gambling behavior in tech or startups any different from what happens in the stock market or any other market every day?”

Gambling comes up often these days when talking about tech. There is substantial economic debate and theory going on about whether the stock market is gambling or not at this point, and it’s an interesting discussion. The strongest traditional argument is that value is created in the stock market, and gabling is zero-sum. This is still probably true (though, again, there is debate about this on a macroeconomic level). Some economists believe that bubbles can create value over the long term (Peres) but they are still bubbles, and there are still losers.

Additionally, sticking to our common definitions of gambling, all this does is reinforce pricing is against intrinsic values.

It may not matter

MG Seigler on Branch says “All boom times end eventually. But calling this a ‘bubble’ implies this time is going to ‘burst’ with far reaching consequences. I just don't see that.”

This may be rational. Most economists agree that bubbles can cause economic damage and are interested in discovering why they happen. But most economists also agree that there are benefits (Peres, Schumpeter’s “Creative Distruction,”) etc. It’s irrelevant to the “are we in a bubble” debate, but I believe that we all viscerally want to deny being in a bubble because we equate bubbles with the devastation wrought in the dotcom boom and the recent housing market boom, though those levels of devastation are not required for a bubble. Big bubbles take economies down with them. But bubbles don’t have to.

In 2007 or so the English synth pop band Depeche Mode was beginning work on their last album, Sounds of the Universe. By this point in their storied career, Depeche Mode had sold over 100 million albums. Their 8th album had gone platinum in the US and number one in eight major countries. Their 7th had gone triple platinum. They had some cash and they were going to put it into their new record.

Toward that end, Martin L. Gore, the primary songwriter in Depeche Mode, decided that he wanted some new gear. Not new, exactly, but rather old, vintage analog synthesizers (along with a boatload of guitars). And he wanted a lot of them. Said the engineer on the record Luke Smith, “Martin was buying all of the kit he’d ever wanted, along with any new and experimental gizmos that tickled his fancy. We started with a lot of gear, and by the end of the session there was a veritable smorgasbord of devices available to satisfy any palate.” Martin even credited the spree to the sound of the record: “I don’t think we can play down the effect that the parcels arriving every day had on the record.”

He was, to quote musician and analog collector Sean Drinkwater, “buying up every Steiner, EMS and EDP synth in existence.” Anyone shopping for analog synthesizers noticed that many of the Ebay auctions were ending in higher-than-normal prices. The specialist online sales outlets were all sold out, and synth prices skyrocketed. Frenzy ensued, and prices continued to skyrocket. Eventually, Depeche Mode got all the synths they needed, and prices began to decline.

And in the end, unless you were a synthesizer collector, the whole thing did not freakin’ matter one bit.

We learned our lesson last time

Many people believe that the tech sector has been sufficiently chastened and are more careful this time. Dave McClure says “The far greater trend is towards more rational co's & pricing compared to 10-12 years ago.”

I’m tempted to say, “Irrelevant! Bubbles have strict definitions!” But in actuality, there is some validity for this point of view. Some economists agree. Studies have been performed where “bounded rationality” (the limits of investor’s knowledge) is mitigated over time with learning.⁠1 The studies were done with repeated trades with personally-known participants, but it’s not completely irrational to say that we’ve learned from the past bubble and may not make the same mistakes again. I hope so. It does, however, remain to be seen, and economic theory has not performed similar studies in the real world where people don’t really “know” each other. As an aside, there’s some interesting potential here on what it means to know someone, via social media and blogging, but I digress.

The Sustainability question

On the Branch debate, McClure nails it when he says “the more relevant issues to discuss are: (1) are there companies at incubation, seed, series A/B/C, or pre-IPO being ‘overpriced’ by investors, (2) is that happening at an ‘unsustainable level’ (ie, at some point will it be re-priced lower), and (3) is the trend towards more or less of that occurring now or in the future?”

He concedes points (1) and (3), so (2) is the big one.  Is it sustainable? Right now it can feel that way.

But things are happening.

We’re in a depressed economy, and VC is the one place exhibiting big returns. An analyst friend of mine says that the Instagram deal and the Facebook IPO are causing a frenzy with hedgies and high net worth individuals. And here I must apologize for bringing up Instagram. I agree with Chris Dixon that the Instagram deal is irrelevant to the existence of a bubble, and indeed it was a market price, not a valuation price so economists would agree as well. But the fact is rich dudes not in tech are freaking out over it. They are blown away by the breathtaking speed of wealth creation from the deal - who wouldn’t be? Many people on the Street are saying that that deal turned heads in a way even Facebook hadn’t. More money is coming into tech because of Instagram, whether it evidenced a bubble or not.

So what happens if the JOBS act, Instagram envy, a rebounding economy and the Facebook IPO concoct a perfect storm and cause a giant amount of new capital to flood the VC market?  Will prices stay the same? Or will we see an accelerated upward spiral? Will they still be sustainable then?

Are any of those four things NOT going to happen? We’ll have to see with the Facebook IPO but if all goes according to plan, this bubble could well be kicking into high gear.

We Believe in the Internet

The internet has massive potential. I believe this. We all do. We don’t like to call it a bubble because doing so belittles the transformational power of the internet. It makes the layperson go “Oh, just ignore that, it’s a fad.” The internet is not a fad. I believe that. Anyone in tech believes that. It’s why, despite everything I write here, I continue to invest in early stage internet companies (and, I confess, I may be a bit susceptible to the greater fool theory).

No one wants to beat on their baby. We love the Internet. All this talk of a bubble makes people doubt it. We don’t want people to doubt the Internet. For many of us, it’s the future. We remember people belittling the Internet after the dotcom bust, and it stung. Promise unfulfilled. It is very, very hard for me, at least, to talk about tech being hyped, because I love it so. It requires unrelenting intellectual honesty, and I can’t deny a massive amount of anxiety saying these things when I think about my own overwhelming exposure to tech in my investment portfolio. But I must. It sucks for me to say it, and I am not acting, yet, with my personal investments because of my belief that we are in a bubble, but I should. As much as I hate that. In the end, even though I see it coming, I’m gonna try and time it as much as anyone. Because I love the Internet, and I don’t want to get out.