On the "yes we are in a bubble" side, proponents point to:
- Huge amounts of money flowing to venture capital funds and companies;
- Sky-high valuations;
- Vast numbers of new startups;
- Significantly high burn rates of many startups;
- New entry into venture investing by corporations, hedge funds, mutual funds and others;
- The advent of incubators, crowdfunding and angel investors; and
- The low interest rate environment.
On the "no we are not in a bubble" side, proponents point to:
- Public tech companies trading at more reasonable valuations;
- The vast market potential for the internet and e-commerce;
- The amount of funds raised by traditional venture firms pales in comparison to the 1999-2000 bubble;
- Venture-backed companies that are going public are more "real" (greater revenues and profiability) than companies that were going public in the 1999-2000 tech bubble; and
- The healthy IPO and M&A environment are providing lots of liquidity;
Now a new article has added to the debate. In "Silicon Valley Boom Unnerves Some Venture Capitalists" a few additional points were raised:
- Venture capital moves in cycles and this cycle will end. The question is when it will end.
- There's a real war for technology talent, which leads to higher startup costs.
- The funding environment is frothy, both for venture capital funds and for startup companies.
My take on this is that we are in a very healthy venture capital cycle, and that the peak of the cycle will likely occur after interest rates rise meaningfully. When this occurs, valuations will have to come down, and then lots of companies will be under water from a valuation perspective. This will lead to losses and the cycle will end and move toward correction.
What do you think?
Here are some links to prior posts on the bubble question: