Let the good times begin...Again...
Wednesday, October 17, 2007
Two years ago, Cringely
(and I blogged
about it) wrote the following:
Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well, we're at the edge of the cliff, so get ready for the most furious venture investing cycle in history.
Now read what Brad Stone and Matt Richtel say in a New York Times piece, titled Silicon Valley Start-Ups Awash in Dollars, Again
Silicon Valley's math is getting fuzzy again.
Internet companies with funny names, little revenue and few customers are commanding high prices. And investors, having seemingly forgotten the pain of the first dot-com bust, are displaying symptoms of the disorder known as irrational exuberance.
Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook's income, 32 times the revenue.
Google, which recently surged past $600 a share, is now worth more than I.B.M., a company with eight times the revenue.
More broadly, Internet start-ups are drawing investment based on their ability to build an audience, not bring in revenue--the very alchemy that many say led to the inflation and bursting of the dot-com bubble.
Coincidence? Probably, but the timing is just about right.
Bubbles in the finance market are inevitable, as investing is not always rational--we would like it to be, but it's not. The question is if we learned anything from 7 years ago? I'm sure we have, but the world of innovation is fast moving and has a very short-spam memory. Specially, when all we remember are the good times.