Posted on 02/22/2011 8:53:06 PM PST by 2ndDivisionVet
Mark Cuban knows a thing or two about bubbles, having profited handsomely from an earlier Internet boom. But ask him if we’re seeing Bubble 2.0 and he’ll give you a different theory.
“It’s almost the 2011 version of a private equity chain letter,” says Cuban, who sold Broadcast.com to Yahoo in 1999 for $5.7 billion and went on to buy the the NBA’s Dallas Mavericks.
“Remember the old chain letter, where you put up some money, then you got other people to put up some money, and you gave it to the people who were in the deal before you? That’s what’s happening today,” says Cuban. “The early [VCs] are getting the new [VCs] to invest enough money at high enough valuations that they get most, if not all of their money back. Then the next round [sees] someone else invest more money at a higher valuation, returning cash to the last two rounds of investors. By the time you get to the last [VC] standing, those last few rounds hope they can get a return from the public markets. That may be very tough. But the only players really on the hook are the guys from the last rounds. Just like in a chain letter.”
It’s a valid point. As certain Internet company valuations reach astronomic new heights, it’s easy to conclude that Silicon Valley has spawned another giant bubble–one that will eventually bounce its way onto the public market and soak investors. But unlike the dot.com mania of a decade ago, today’s soaring valuations don’t involve hundreds of companies and thousands of retail investors. They center on a select group of wealthy VCs chasing after a comparatively small number of very richly valued tech companies–most of which are in Silicon Valley.
Over the last three months alone, Facebook’s roughly $33 billion valuation has roughly doubled, to an estimated $60 billion. Zynga’s reported valuation has jumped to upwards of $9 billion from $4 billion last May. And both pale in comparison to Twitter, which generated an estimated $150 million in revenue in 2010 yet has reportedly received overtures that peg its worth at between $8 billion and $10 billion. (Just two months ago, when Kleiner Perkins led a $200 million investment in Twitter, its valuation was $3.7 billion.)
Fueling the fire are firms like Andreessen Horowitz, which last week sunk $80 million into secondary shares of Twitter, and Kleiner Perkins, which this week threw $38 million at Facebook shareholders to (finally) add the company to its portfolio. But they’re certainly not alone. According to the secondary shares marketplace SecondMarket, VCs have represented the majority of SecondMarket’s buyers since the third quarter of 2010 and they accounted for more than 40 percent of its transactions in the fourth quarter.
Maybe the VCs truly believe that Facebook, Twitter, Groupon and Zynga are on the cusp of becoming among the most valuable companies in the world. But it may also be true that they believe they can sell their shares to a greater fool. (JPMorgan’s planned social media fund jumps to mind.)
Either way, when the chain ultimately ends, few, including Cuban, will feel terribly sorry for those left holding empty envelopes.
“When the market has a correction, stock prices will correct dramatically, and that sound you’ll hear from the Valley?” says Cuban. “[It] will be of a fund manager screaming, ‘Sh_t!’ as he turns out the light on his fund.”
that have been designed by Western engineers.
How many of those western engineers are imported from India? I don't know. But I do know that our own "production" of engineers is not meeting needs.
Thankfully we have loads of Phd's in literature and women's studies to power our economy.
You know it..."powering" the economy from gubmint offices where they get paid to tell the producers what NOT to produce.
They aren't fit for any other work.
The Chinese manufacture things and we increasingly play games and swindle each other.
Broadcast.com— never even heard of it, and I lived thru the 90s tech boom.
Zynga—never heard of this one, either. Re-—facebook and twitter, seems to me none of these website fads last forever. And when they fade, they FADE. They become ghost towns. Will facebook and twitter be different? I wouldn’t invest in them.
Broadcast.com was the creator of internet radio. The ability of radio stations to stream directly over the internet to your PC came from it.
So when you’re listening to your favorite station, Sirius/XM over the internet, or any other broadcast, you can thank Mark Cuban.
Amazing. Hard to believe there’s that much money in putting radio on the net.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.