$30bn gamble
Back in the late 90s I kidded myself I knew what I was doing wrt buying the Nasdaq hot stocks. If I could grasp the product, believed there was a viable market for it, understood how it charged its customers and, ideally, knew of someone in the management team then it was all-systems-go and in I’d pile, relatively speaking. Needless to say it didn’t end well, and following several litigious claims against spuriously represented organisations, I have on my wall a framed $10 cheque for full-and-final settlement from the IPO Securities Litigation Settlement Fund. Never have a fool and his money been so quickly parted.
The question that is now apparently being asked throughout ‘the Valley’ is are we, or rather they, in another stock market tech bubble and is it about to burst? If you believe, like me, that this scenario refers to a situation where company valuations no longer bear any relation to either their current financial performance, or even future potential, then yep, we’re in a bubble. And if this is the case, then the only variable is when, not if, the bubble goes pop.
Stock market tech bubbles represent manna from heaven for those in at the beginning, usually the tech founders, VC investors, first-day speculators and occasionally, employees and highlights the oft-used phrase that ‘even turkeys can fly in a strong wind’. However, for the majority the hyperbole that’s created, and the subsequent rush to get in on the party, represent dangerous times. Let’s not beat around the bush, it’s no more than a gamble, and a risky one at that. The bet is that someone, at some point down the line, will be willing to pay you more for your stock than you paid for it. You’ve got to believe that it’s a long-ish-term sustainable boom where the new forms of monetisation and value-building will play more of a starring role than good old fashioned business metrics.
For this second bubble, my concern is that even the so-called visionaries, those who can see round corners, are getting it all wrong, and even some of the ‘stars’ from v1.0 are being shown to have been built on sand. Netscape, Yahoo, Instagram, Rockmelt, Loudcloud, Commerce One, Webvan, Oculus, Sykpe even, and elements of Google (GoogleGlass anyone?), what of them? Furthermore, when I hear tales of every fund seeking the advice & guidance of hoodie-wearing teenage college drop-outs I start to think the asylum is truly being run by the lunatics.
Notwithstanding the advertising & personal data models that support Google & Facebook, the monetisation argument for many within the tech space seems to be based upon the long-term and repeat nature of the subscription model. However, look at the swathe of SaaS companies whose revenues get nowhere near justifying their valuation and corresponding stock price. These companies need predictable & consistent revenue growth measured in decades, and multiples of decades, but the nature of today’s ever-changing commercial landscape is not best renowned for its loyalty and supplier commitment. Or they need licence revenue and a far more proprietary approach. I’ve not heard ‘you never get sacked for buying blue’ for many a year.
A further valuation-justifying argument is based upon the ‘land-grab’ scenario that believes launching & capturing the whole audience, the whole kit and caboodle, from the onset is paramount. I can see this is compelling and potentially alluring but my scepticism remains as, in my limited understanding, trying to figure out how to monetise your community of 500 million after the event just smacks of putting the cart before the horse. And don’t even get me started on those blessed unicorns.
The value of your investment can fall as well as rise. Caveat emptor. And $30bn for Snapchat? Well, either go figure? Or go figures!
The lunatics have *always* run the asylum, and “glitches” like google-glass don’t detract (sadly) from google’s ability to dominate (he says, sending from gmail)
Risky though, you bet; I believe for a company to work, it needs many things including : good idea, solve problem in the market, good technology, driven by the right people (and those people change), and maybe even, a bit of luck… [right place, right time]
Always buy into the fast follower, that’s my motto, they tend to be the ones that make the most money
Disclaimer : it’s not how much money you make, or how much money you keep, it’s about how hard it works for you, and how you bring up your kids and thus ultimately how many generations you keep it for…
Here are the thoughts of John Grogan, CEO & Co-Founder of content & media publishing start-up, Byblio:
“I worked for a US equity fund in the late 90’s and remember the first tech bubble all too well. Today feels just like that – it’s a combination of the high levels of valuation (look at the Snapchat IPO) combined with the arrogance of the industry – it’s truly insufferable right now!
But, what’s the biggest difference between then and now? This time, every single asset class around the world is grossly over-valued. If you put your money into just about anything, you’re almost guaranteed losses! When the next blow-up arrives, it’s going to make 2008 look like a walk in the park.
And on that sunny note …”