This led to a thoughtful response by Chris Dixon on his blog. In "Is it a Tech Bubble" Mr. Dixon argues that the situation is more nuanced, and provides seven thoughts:
- Public tech companies are not trading at "bubble" valuations, but at a reasonable 17x P/E multiple.
- To argue that Instagram's acquisition by Facebook was too high requires arguing that either Facebook's expected IPO valuation of $100 billion is too high, or that it was irrational for Facebook to spend 1% of its market cap on perhaps one of its biggest threats.
- There may be some over-valuation in deals in seed deals and in later-stage "momentum valuations," which Mr. Dixon provides thoughts of why this is the case.
- Certain stages seem under-valued, such as Series A rounds, which is leading some investors away from seed stage investing to Series A investing.
- Macro trends also play a role, and it's anyone's guess what will happen in the next 3 years. In Mr. Dixon's words: "That's why smart investors continue investing at a regular pace through ups and downs."
- It is somewhat true that start-ups with zero revenue may get better valuations. This is because investors may be able to justify higher valuations when they "buy the dream."
- Venture investors don't invest in companies with a primary strategy to flip them. This is because VCs recognize that they are better off to invest in companies that can grow into a big business, which creates more options for exits, including selling the company.
"Disruptions: With No Revenue, an Illusion of Value"
"Is it a Tech Bubble"