Bubble Indemnity

They don't call it Silly Dot CON Valley for nothing!

Being a consultant in the tech sector for quite a while, it has been obvious for a while that companies either have the perspective that software should be almost free or they are willing to pay for it only slightly above cost. With that type of mentality, it is no wonder that there is a tech bubble. Witnesses the implosion now well underway with the ecommerce software and services sector. Without a broad middle class to fuel stable growth, VCs will just be throwing away more money chasing ghosts.

VC = sharp-elbowed investors with an exceedingly overblown sense of self-importance, out to maximize their profits and limit their risk at the expense of everything else. Never understood how venture capitalist became a profession.

Yet another editorial written by an "insider" that claims superior vetting skills to your run of the mill VC. Let's interject some science here. In all realms of human, animal, whatever endeavor there is a distribution of skills. There are the fabulously smart, talented individuals ranging all the way to the unsophisticated neophyte. Yet they can all self-identify as being part of a group or trade. Let's take hairstyling-- you've got your expensive NY salon and then there's Supercuts. For anyone that's been around LA, there's a zillion "actors" and "producers" and some are really talented and some are not. The same goes for the VC ecosystem. Living in the same area as Mr. Lewis-Kraus, yes, there are a lot of people who self identify as VCs and, yes, there are now too many who are not talented-- the "dumb money" of which he speaks. But, hey, you only look smart because you have this whole natural spectrum of people. And, hey, guess what? You're richer because these people exist.

Would we have bubbles if there was so much wealth at the top looking for a home?

Excuse me oldies but you told my generation we should all learn to code and we could all make a Facebook (Mark Z said it took him only a week to make) and we would be rich.

Now my generation is finding out that we know how to code but there are fewer and fewer opportunities to hit it big.

Who should we blame and sue?

Not to mention my dad bought his house for $80,000 and today you cant buy anything for under $1,000,000.

And you want me to have kids? now? maybe in 10 more years. maybe.

The "Unicorn" phenomenon is a harbinger........Gone is the careful value creation and sequencing of a series of investments with like minded CO investors that aligned themselves.....now the calculus is much much different...it is a value grab and the lack of discipline exhibited in SV is noteworthy...It has become an old boys club where the rules appear to be " play along to get along"....they shoukd all be wearing masks of former President Nixon.

Professional venture capitalists love to invest in "disruptive" business models. In the greatest of ironies, what concerns them most today is that their own business model is about to get disrupted in the form of equity Crowdfunding under the JOBS Act. When they talk about "dumb money," they mean ordinary, hard-working Americans who - God forbid - will no longer need VCs to act as middlemen. Yes, middlemen.

The fallacy in Silicon Valley is that earnings don't matter. Yes they do. Relying entirely on the bigger fool approach to profits (i.e., an endless stream of investors to buy stock at ever increasing prices) is the sure path to financial collapse. Unfortunately, it''s the path followed not only in Silicon Valley but everywhere. There's a good reason the IPO market has evaporated. Actually, two reasons: the absence of earnings to support the IPO price and the success of the bigger fool approach to investing.

Thankful for the venture capitalists and the money they choose to invest in individuals and start-up companies to encourage big business and employment in the U.S.

So, let's do some arithmetic (something SV VC apparently is not very good at):

$250 billion thrown away on useless ventures;
$600 billion thrown away on the fracking bubble;
$2 trillion in student loan debt, at least 40% of which is in default or late payments;
$1 trillion thrown away on the F-35 program;
$532 trillion in offshore Panama/Delaware/Nevada/Legions of Others dark money funds, all of which can easily be considered criminal, stolen money.

Let's not even mention all the money wasted on destructive wars which made everything worse over the past fifteen years.... oh well, add another $3 trillion, just to be safe.

Meanwhile, we're told there's no money for fresh water; no money for public schools, and teachers; no money to fix our roads, all of which seem to be turning rapidly to gravel; no money to fix our bridges; no money to take care of the poor, sick and elderly; no money to fund Social Security and meet the pension plan obligations contractually agreed to, by workers sacrificing a significant part of their salary to contribute to such funds.

Oh, the hypocrisy! The corruption! The greed, and lying, and failure, and stupidity! The sheer, blinding ignorance of it all.

We are witness to the debut of America's Stupidest Generation. The children of Ronnie Rayguns, formed in his image.

The dupes of capitalism.

These "smart money" guys parked half a billion dollars in Zenefits to shore up their stakes, pushing the valuation and expectations for future earnings so high that, hey what a surprise, the company cut major regulatory corners in a vain attempt to grow at the unreasonably expected Unicorn rate. Until the scheme collapsed. Just like Groupon, one of the proto Unicorns. How many times is that same model being replicated now? Billions sitting on the sidelines in clapboard future IPOs to game valuations rather than actually create value. Real smart.

"mostly crap and largely worthless"

In which VC bubble was that not true?

It will also be true in the NEXT VC bubble...

I live at the epicenter of all this hand wringing.

And yes, it's starting to feel just a little too much like dot-com déjà vu around here.

The ultimately destructive force of easy Fed money. A lot of the "equity" is leveraged. It hasnt popped yet. When it does there will be no questions about whether the bubble is bursting. It will be painfully clear.

Ho-Hum. Another article about how central bank money printing has created yet another asset bubble. Like the article says, these folks can stand to lose the money. Free money has to land somewhere. It might as well be where there are already billions laying around.

Thank your for your valuable insights in a system that often appears to be a black box.
But when we soberly thinking about the real advantages of a V.C., is it really money?
Well, yesterday, maybe it was. It was the time of high loan interests and a strong balance of power in favor of banks. But today, that same systems of power V.C.s are claiming.
Stop here and think about how V.C.s managed to be in that position: They successfully learned to built an attractive alternative besides the bank system.
That same pattern I think will help nowadays to disrupt this closed system you write about.
Segment the real benefits of V.C.s: The network, not money.
Today, everyone with more or less money seems to be happy to have a solid investment. Even banks. Money is cheap these days.
It's the network that makes these guys indispensable.
Get this: It's the hunch of the fact that execs, that people have learned how to turn an idea into working businesses that makes me get wind of a chance. A vital chance that if, naively spoken, innovators and executors connect, money will come automatically.

Maybe still from V.C.s, but rather with equal rights and driven by real creative effort.

Ps. That's the reason why I wrote an essay about an Open Innovation Platform Approach. It's open source http://goo.gl/R99m7S

Mr Lewis-Kraus: The quote: " ... and the result is that most of the things we've funded are mostly crap and largely worthless;" merits trying to understand its context. To help understand this economic context, consider:
In his May 6, 2016 column for the Times, Mr Neil Irwin notes that national income has been redistributed toward shareholders' gains and away from workers' wages over the last several decades. As a result, a source of funds may exist to push speculation in tech stocks upwards. But in his column for the April 29, 2016 Times, Mr Irwin notes that productivity is basically flat, growing at a slow pace of 0.4 % annually from 2011 through 2015. Mr Irwin hypothesizes that: prior innovative software, earlier more efficient technology, and other synergistic management strategies "have been fully put into place across corporate America, and so are no longer increasing productivity." Also, in her April 24, 2016 Fair Game column for the Times, Ms Gretchen Morgenson notes that many companies do not present their P&L results exclusively per GAAP. She notes that for 380 firms, existing since 2009, non-GAAP profit "was up 6.6 percent in 2015" compared to 2014. Yet, she also notes: per GAAP income statements, at these same 380 firms, 2015 profit "actually declined almost 11 percent from 2014." From [a sources of speculative funds/ to low productivity/to low firm profits], this logic flow seems to back a too highly valued tech sector.
5/10/16 1:16p Greenville NC

As a tech employee in SF I actually look forward to more lean times. Yes, I will likely be paid less, but the callous pride and arrogance of even the 10th percentile entrepreneurs and VCs-and their contempt for employees- is mind-numbing.

The claim by those who state that "It's different this time" will be proven wrong again, as it was in the previous bubble. Although there wasn't as big of a public market (with companies that went public, and stock subsequently crashed), there will be people who suffer again, such as employees, as the article said, and perhaps a lull that prevents really useful companies from thriving, if the good gets swept away with the bad.

These successive asset bubbles are a classic sign of a savings glut in the super investor class - excess spare money chasing marginal improvements in returns via speculation.