Tuesday, March 29, 2011

Is It A Bubble?

Chat bubble 1Image via WikipediaThis bubble talk/debate could last for the rest of the year. It might even spill into 2012. Because the craze is just beginning. My take has been that some real wealth is being created, but there sure is some accompanying froth. That is not something to complain about. On the cutting edge there are hits and misses. To expect for all hits is highly unrealistic. It just never has happened.

But the debate is robust and very real. Everybody who is a somebody has an opinion.

A Mini Bubble Burst In Three Years
Bubble, Boom Or Froth?
Bubble Talk Goes On: It's An Overshoot

New York Times: Is It a New Tech Bubble? Let’s See if It Pops
The social shopping site Groupon is said to be considering an initial public offering that would value the company at $25 billion. Less than a year ago, the company was valued at $1.4 billion...... the tech start-ups that have attracted so much interest from investors have real businesses — not just eyeballs and clicks ..... one in three people are online, or roughly two billion users ..... For Wall Street, the initial attraction to Internet start-ups in the 1990s was the opportunity to earn fees from taking the companies to market. At its peak in 1999, the industry made $1.3 billion in underwriting fees ..... Over the last five months, many venture capital players have raised giant chunks of capital. One Facebook investor, Accel Partners, is about to raise $2 billion for investments in China and the United States, while Bessemer Venture Partners is said to be closing in on $1.5 billion for a new fund. Greylock Partners, Sequoia Capital, Andreessen Horowitz and Kleiner Perkins Caufield & Byers have collectively raised more than $3 billion in the last six months. .... “When you see the valuations being bandied about — I do think, boy, these better be really special companies.”

Dave Winer: Is it a bubble? It matters if we think it is.
In this bubble there's a long tail of individuals starting companies. And they're almost all very young, and probably don't have a cushion to ride on through the inevitable downturn. ...... The winners are going to be people who have cash-generating businesses.

Chris Dixon: A Few Points About The "Tech Bubble" Debate
Pretty much every day now a major blog or newspaper writes an article asking whether we are experiencing another tech bubble ..... incredibly innovative companies like Apple and Google trading at 19 and 22 P/Es respectively is pretty reasonable. ..... A bubble is a decoupling of asset prices (valuations) from their underlying economic fundamentals (which is why the graph at the top of the NYTimes article today is meaningless). ...... During bubbles, investors stop valuing companies based on fundamentals and instead invest based on the expectation that prices will continue to rise and “greater fools” will buy the assets from them at a higher price. This process is unsustainable, which is why bubbles eventually pop. But when the economic fundamentals are strong, the last buyer can always hold onto the asset and collect a return through the asset’s cash flows, thereby preventing a pop.

Tom Eisenmann, Harvard Professor: Tonight We're Going To Party Like It's 1999
only 139 (7%) of the 2,121 Internet companies completed an IPO ..... only 37 had a market value at the end of 2001 that exceed the total capital they had raised historically. A full 42% of the sector's $99 billion in yearend 2001 market value was accounted for by just five companies: Amazon, eBay, E*Trade, Yahoo!, and WebMD. ..... Conventional wisdom exaggerates the economic damage wrought by the late-1990s bubble. ..... Given lottery-style payoffs, high rates of entry and failure are consistent with rational economic behavior

Steve Blank: New Rules for the New Internet Bubble
We’re now in the second Internet bubble. The signals are loud and clear: seed and late stage valuations are getting frothy and wacky, and hiring talent in Silicon Valley is the toughest it has been since the dot.com bubble ....... The Golden Age (1970 – 1995): Build a growing business with a consistently profitable track record (after at least 5 quarters,) and go public when it’s time. ..... Dot.com Bubble (1995-2000): “Anything goes” as public markets clamor for ideas, vague promises of future growth, and IPOs happen absent regard for history or profitability. ..... Lean Startups/Back to Basics (2000-2010): No IPO’s, limited VC cash, lack of confidence and funding fuels “lean startup” era with limited M&A and even less IPO activity. ..... The New Bubble: (2011 – 2014): Here we go again…. ..... The bubble is being driven by market forces on a scale never seen in the history of commerce. For the first time, startups can today think about a Total Available Market in the billions of users (smart phones, tablets, PC’s, etc.) and aim for hundreds of millions of customers. And those customers may be using their devices/apps continuously. The revenue, profits and speed of scale of the winning companies can be breathtaking. ..... you and your company now need to be everywhere and look larger than life. Show and talk at conferences, be on lots of blogs, use social networks and build a brand. In the new bubble PR may be your new best friend, so invest in it.

Ben Horowitz: Bubble Trouble? I Don’t Think So
Many very smart CEOs, VCs, reporters, and analysts can’t seem to stop worrying about the second coming of the dot com bust. ..... the relevant bubble statistic is not valuation. It’s the valuation:value ratio. High valuations are fine if the underlying value is there ...... in recent high profile private financing rounds for private technology companies with valuations over $1B, the valuation multiples were at or below corresponding multiples for publicly traded companies such as Google ...... Companies that produce little value today might still receive high valuations due to high growth expectations ..... The valuation:value ratio of today’s private and public technology companies look nothing like the bubble ratios. ..... In the 3-year period from 1998-2000, venture capital firms raised more than $200 billion, which represented about 0.55% of the national GDP. To put that in perspective, that’s more money than the entire venture industry raised collectively over the prior 18 years. ...... from 1998-2000 alone, venture capital investments also topped $200 billion. ....... 2010 venture capital fundraising is at the same level as it was in 1995 and 1996. ..... The inflows don’t actually look that bubblicious. ...... the expectations of the great Internet boom vastly outstripped the actual activity. Specifically, the market wasn’t nearly as big as anticipated and the products were not nearly as good as imagined—at the time. ...... Welcome to the great Internet Boom of 2011. ...... privately held technology companies trade at reasonable valuations vs. publicly traded comparable companies. These public companies trade at reasonable valuations vs. historical precedents. ....... What about companies with reportedly very little revenue and very high valuations such as Twitter? A good investing rule of thumb is that any company that simultaneously saves Charlie Sheen’s career and starts a revolution in Egypt may be on to something. ....... we are at the very beginning a gargantuan new technology cycle: the move from Web/PC computing to cloud and mobile ....... The relational database and application boom created hugely valuable new companies such as Oracle, Siebel Systems, and PeopleSoft. It didn’t stop there. As a result of the shift in application architecture, the old computing infrastructure became inappropriate and created new companies in Networking, Storage, and Management Software like Cisco and EMC. ...... The shift to cloud computing will have a more profound impact on the computing ecosystem than the shift to client/server. ...... New application companies like WorkDay and Proferi that take advantage of the cloud to deliver never-before-possible solutions, will devastate their old school RDBMS-based competitors. ......... In the cloud, where applications have been completely decoupled from the underlying infrastructure, the old network and systems management software no longer works leading to an opportunity for a new company to grab that $30B market. ....... Microsoft broke the mold by delivering solutions to both consumers and enterprises and leading the original consumerization of the enterprise. As today’s clients move from PCs to mobile devices, a huge set of opportunities will emerge for new companies to solve important problems. ....... The very largest opportunities will likely come from companies for which there are no analogy or precedent. Profound new platforms open the market to ideas never before imaginable. ...... signs of a bubble look almost exactly the same as signs of a boom. In fact, it’s usually not a bubble until everyone agrees that it’s a boom. ....... Will all the excitement around the opportunities created by the Internet and the shift to cloud/mobile computing eventually lead to a bubble? Absolutely. Are we in a bubble today? I don’t think so.

Bloomberg: Dear Warren: Here are the Overvalued Social Networking Companies
There is a cliche that companies waste half their ad spending. They just don’t know which half. Something similar might be said about social networking firms. Most are overvalued; we just don’t know which ones..... These companies — LinkedIn, Zynga, Facebook, Groupon, Twitter, etc. — are already public, just not public on traditional stock exchanges. So, when they go re-public, that is, when they go public on more traditional exchanges, like Nasdaq or the NYSE, that will be the moment at which insiders exit en masse in an unprecedented way. .... they’re public, and they’re about to go re-public, which will almost certainly make their prices fall.

CNet: Buffett cautions social-networking investors
Buffett isn't alone in his dire warnings of another bubble in the offing. IAC founder and former entertainment mogul Barry Diller recently called the multibillion-dollar valuations of social-networking companies with high user engagement but unproven long-term revenue "mathematically insane."

VentureBeat: Silicon Valley is abuzz with bubble and recovery stories — too soon?
Overall, California’s unemployment rate is 12.2 percent and the nation’s is 8.9 percent. ...... 4 percent in December 2006 and the 2.2 percent in November, 1999 ..... Zynga offers free haircuts and iPads to recruits. Instagram offers personal food and drink orders from employees. Starting salaries at Google for computer scientists are $90,000 to $105,000. ...... Google has 24,000 employees and plans to increase its workforce by 25 percent to more than 30,000. Facebook has 2,000 employees, 1,400 in Silicon Valley. It is growing about 50 percent a year ....... Zynga has more than 1,500 (we hear it’s more than 1,700) and expects to more than double that in the next year. Twitter has more than 400 employees and wants to grow to more than 3,000 by mid-2013. Job site Dice.com has more than 5,000 open positions in Silicon Valley, up 41 percent from a year ago. ...... a recovery that could last five years is just getting started ..... Lots of people who predicted a bubble in 1994 — and therefore stayed out of the frothy stocks and investments — didn’t get rich during those days because they were overly cautious, or “sitting around and biting our nails,” as Wilson said. ........ the long-awaited arrival of the internet boom.

Silicon Valley: State, Silicon Valley post job gains
California scored its biggest one-month job gain in more than two decades in February ...... California added 96,500 jobs in February, accounting for slightly more than half the nation's job growth ..... But with 2.2 million unemployed, California faces a long recovery. Job gains were concentrated on the coast, while the Central Valley and Inland Empire continued to struggle.

Los Angeles Times: High-tech industry on hiring binge in California; Google, Facebook and Zynga lead the pack
Top technology companies are competing fiercely for engineers, designers, computer scientists, data crunchers and other workers with specialized technical skills. But the hiring frenzy has also begun to reach workers with other kinds of skills. ...... Silicon Valley is looking like an economic Shangri-La as companies here hire aggressively and court prospective recruits with free food, lots of perks and loads of cash. Competition for talent is especially fierce among Internet and social media companies. ..... Facebook ... Last year it opened an engineering office in Seattle and a sales and operations office in Austin, Texas. ...... MyLikes opened a small office in Los Angeles to hire engineers because competition isn't quite as intense ...... In January, Google successfully beat back an effort by Twitter to hire one of its product development vice presidents, Sundar Pichai. Google also recently gave a top engineer a $5-million bonus package to keep him from defecting.

San Francisco Chronicle: S.F. tech jobs climb near level of dot-com peak
The number of tech workers in San Francisco today is nearing its peak in 2000...... The city had an estimated 32,180 tech jobs last year, compared with 34,116 in 2000 ...... a growing desire by companies wanting to make San Francisco their home..... San Francisco's tech sector is likely only one year into a significant growth cycle...... At the end of 2010, 17.1 percent of the city's office space sat vacant ...... In 2000, tech companies leased an average of 325 square feet per employee. Today that number has fallen to 175...... Twitter, which is considering leasing 400,000 square feet in the Mid-Market area, and Zynga, which leased 267,000 square feet in SoMa last year, are perhaps the most visible examples of the city's expanding tech workforce...... Businesses that analyze social media traffic, like PeopleBrowsr, have an interest in being close to a social-networking giant like Twitter...... Although the debate continues over whether another bubble is forming, Ted Egan, San Francisco's chief economist, said the tech scene today differs significantly from 2000....... the risk of a collapse is spread among a relatively small number of institutional investors, rather than the stock market at large....... Over the past decade, San Francisco has gone from two biotech companies to 74, according to the city, and from zero clean-energy companies to more than 200

New York Times: Silicon Valley Hiring Perks: Meals, iPads and a Cubicle for Spot
lured Mr. Firestone from Apple partly with an unusual pitch: it promised to give him weekly lessons about starting his own business someday, including how to find venture capitalists to finance it. ....... Path, a photo-sharing site, moved its offices so it could offer sweeping views of the San Francisco Bay. At Instagram, another photo-sharing start-up, workers take personal food and drink orders from employees, fill them at Costco and 
Chat bubble 2Image via Wikipediakeep the supplies on hand for lunches and snacks. ....... Google is paying computer science majors just out of college $90,000 to $105,000 ..... the industry average of $80,000 ...... “Recruiting in Silicon Valley is more competitive and intense and furious than college football recruiting of high school athletes.” ...... there has been a psychological shift; many of the most talented engineers want to be the next Mark Zuckerberg, not work for him........ At Square, the co-founder and chief executive, Jack Dorsey, who also co-founded Twitter, gives employees 20-minute lessons on topics like how to raise venture capital. Every employee can view Square’s product plans and financials to learn about building a business. ...... But even with a glut of engineers on the job market, few have the skills that tech companies look for ..... Colleges rarely teach the newer programming languages like PHP, Ruby and Python, which have become more popular at young Web companies than older ones like Java ..... But since college degrees are not mandatory, recruiters are also going to computer coding competitions and parties ...... at the South by Southwest festival in Austin, Tex., this month, where start-ups tried to one-up each other with free beer, sushi, cocktails, ice sculptures, costumed acrobats and big-name bands and D.J.’s.

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