I think it’s a good thing that the speculation on large private tech companies is happening in secondary markets where the risks are being taken by institutions or wealthy individuals. This is in stark contrast to the dot-com bubble of the 90s where many of the people holding the bag when bubble popped were non-rich people who bought stocks through public markets. Obviously this could change if we have a bunch of tech IPOs.
Agree on this point. It’s a completely different scenario than last time for a variety of reasons, but there’d be more pressure to IPO (and more risk to civilians) without the secondary markets.
I have no evidence to cite for my theory that those same secondary markets are driving up funding levels, which as @tedr has pointed out repeatedly, creates a resourcing clusterfuck for both existing and emerging players in the startup economy.
I, too, have been finding refuge in the “it’s only the rich and instititutions” thinking around this “bubble.” But two thoughts nag at me:
First, it’s still a bubble. And bubbles always have rationalizations. They still burst. Exclusively private funding will make this a different type of bubble, but when the rich and institutions get burned in the bursting, they will stop investing for a while, or at least at these levels. And it will burst. And they will stop investing. They will look to other places they should be looking now like China or green or bio. It’s a bubble. It will burst. They all do. And then lots of my friends may well still be out of work. The public might do just fine, so our moral slate will be cleaner than the banks, but we’ll have higher sector unemployment than they ever did. At least in the short term before the profitable ones scoop people up.
TANGENT: Perversely, however, this will be good for The Barbarian Group since it will dampen our primary competitor for talent right now, and the damage won’t have hit brands or the general public much yet, so it shouldn’t impact advertising much (hrm maybe if you wanna short this bubble you should buy ad stocks. Ha. Except ad stocks suck). So I guess you could say my “investments” are nicely diversified.
But the other thing (secondly) is Sarbanes Oxley, which totally changing the IPO game from last time, and that is going to be huge. We’re actually coming up on a moment where the original intent of Sox might be useful: to make public companies and companies going public more accountable. So the ones that DO make it public this time around will presumably be in better shape and of slightly better quality than last time. Though conversely this means there will be TONS more companies without viable exit options (let’s assume for a moment that the number of potential acquirers is stable, though I think it, too, is decreased). So… how’s everyone gonna make an exit? This will eventually become an issue. The ponzi scheme that Mark Cuban described is, like all ponzi schemes, unsustainable, and there’s no easy way (thankfully) to dump the whole, hot mess in the public’s lap like last tech bubble or how the banks managed (I doubt the government is gonna bailout the tech industry, though who knows. Maybe this why Schmidt wants that Commerce Secretary job. ha.)
So. Then. We’re already hearing rumblings from the tech industry about how Sox is burdensome, and Sox needs to be reworked, and Sox is interfering in the tech industry’s innovation. But it is not. Sox is going to be doing its job in this bubble. And if you want to actually look to see when this bubble’s gone to far, I would actually say that one of the easiest ways to measure how close we are to bubble busting, is to watch the chatter around Sox or, god forbid, action that lessens it. We’re at the end, then.