Best guess: It won't start deflating (or popping, if there ends up being even more money) until well after Facebook et. al have their IPOs next year. Just watch for articles in 2014ish quoting experts on the consensus "we aren't so skeptical anymore, it's different this time!"
It is different this time, until we start funding things that don't have revenue or any real hope of revenue or a plan beyond vague advertisingness. I don't mean this as disagreement because if we really are in a bubble this is inevitable. On the other hand, if we never really progress to this point, maybe it isn't a bubble. Ultimately there still is a lot of money to be made on the web and with other new technologies, it's not out of the question that what we're seeing today is actually well-grounded.
(Fair disclosure, my personal biases are that if we aren't right now we will be as an inevitable result of extraordinarily loose monetary policy and nowhere else for all the sloshing capital to go. But I don't think the evidence actually quite justifies yelling "BUBBLE!" quite yet. As for the bête noire de jour, I don't think we know enough about Color's private plans to make a call. If they've got nothing but vague advertising plans, yeah, that's bubblish, but I don't think we know that for certain.)
I think I once read a quote by Peter Lynch where he said something like, "I know things are looking good when I'm at a party and people ask me for investment advice. I know looking bad when I'm at a party when people are giving me investment advice."
"Over the last five months, many venture capital players have raised giant chunks of capital. One Facebook investor, Accel Partners, is about to raise $2 billion for investments in China and the United States, while Bessemer Venture Partners is said to be closing in on $1.5 billion for a new fund. Greylock Partners, Sequoia Capital, Andreessen Horowitz and Kleiner Perkins Caufield & Byers have collectively raised more than $3 billion in the last six months."
I keep people hearing people say things to the effect of "it's not a bubble, because the investment is confined to a small amount of private equity". And I suppose that even rapid, multi-billion dollar growth in VC might be explained exclusively by the irrationality of a few private investors. But is that the likely conclusion here?
Biotech investment tanked in 2009, and has barely begun to recover. Every statistic I've seen says that valley software companies are still getting the lion's share of VC investment:
If this bubble is confined to a few private equity parties and the amount actually invested is only a few billion total (2.4 in FB's case), then you can blow bigger ones with soapy water.
People who don't think there's a bubble focus on the very real differences between the 1990s and now.
People who think there is a bubble focus on the patterns that are similar to the 1990s and past bubbles -- including how the optimists always say "it's all different this time."
It's meaningless to compare the market caps of those 24 public companies from 1999 (that had IPOs within that year) to the valuations of those 5 private companies from 2011. Companies are doing their IPOs much larger and later than back then.
If you invested money equally in all the 1999 IPO companies, you would have less money now, 13 years later, than what you started with and thats not factoring in the time value of money.
TD Waterhouse was a subsidiary of TD bank. TD bought back TD Waterhouse. The successor company is TD Ameritrade, but I'm not sure how much of that is Waterhouse and how much is the old Ameritrade.
It's also tricky to look at market cap versus price. Many of these companies issued additional shares at low valuations. Priceline, for example, is at about where it traded right after the IPO--but its market cap has more than doubled.
It is very important not to look at tech investment isolated from the rest of the economy. In late nineties, money was being thrown to tech startups because everyone believed that it was a much better investment opportunity than other methods. These days, it is a better investment then the alternatives, as it at least gives a chance to win big, while other types of investments pretty much guarantee a loss.
That won't last forever, but I don't think it will grow to a full-blown bubble; so far it's more akin to the growth we had in 2007-2008, when there even were mocking songs about a "tech bubble", but the mocking ended along with the investments in 2009.
That being said, I have no idea what will be the effect of the two big events that will affect the Internet in the next year or two: depletion of IPv4 addresses and utter dominance of Facebook...
I can't take this article seriously. How can we compare 'valuations' to actual raised money in IPO's? All of this value of facebook is based of estimates on the small % of assets owned by outside capital that is used to fund it.
What makes you think that there's anything more "real" about 1999 IPOs relative to 2011 valuations? They are both numbers based on hypothetical best case scenarios that some pool of idiots have imagined (a much larger pool of idiots in the case of stock markets).
One big difference is that today money is almost free. 1 year treasuries in 1999 were between 4 and 6 percent. Today, they are 0.30%. This has a huge influence on the availability of capital for investment... i.e. if you're a big bank, you can get money cheaply and it's much harder to lose. Does that sound "real"?
