VC Horowitz: 'Why we only made $78m on $1bn Instagram sale' Netscape co-founder Marc Andreessen's high-tech venture fund Andreessen Horowitz has made out handsomely on Facebook's $1bn purchase of Instagram. Andreessen's partner Ben Horowitz reckons the duo have made 312 times their original investment in the zero-revenue smartphone photo sharing site after committing $250,000 two years …
Well, no, it's not. A Ponzi scheme deliberately and fraudulently pays returns from incoming receipts. This is a valuation bubble, where the market assigns excessive value to securities (or commodities, etc). No fraud is required; ordinary human greed and stupidity will do the trick.
Not all bad investments are Ponzi schemes, and labeling them as such just dilutes the terminology.
Did a billion US dollars actually transfer between accounts here? Or did the absurdly valued Facebook say here is some of the hyper-overvalued bits of paper we call shares in exchange for some of the stupidly overvalued bits of paper that you call your shares. Does Facebook actually have a billion dollars lying around in some bank account or is this all some bizarre fantasy money based on their supposed worth that will all vanish the moment reality sets in?
Ahhh. So $300mil now, and $23mil on paper, but don't try to cash it all in or the value of it will start collapsing in panic.
Funny how there is all this "money" floating around in the form of stocks, which only has value as long as no-one tries to cash it all in and spend it. If I were one of the Instagram recipients of this generosity, I would be attempting to find the optimum Sell-Off Speed : Discretion midpoint as discarding these as profitably and as a quickly as I could.
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