back to article A bubble? No way, we're in a bust, says rich VC living in alternate reality

Those concerned that Silicon Valley is inside a tech bubble fit to burst, have no fear – because according to true disruptive thinking, the opposite is true. Speaking at a conference on Wednesday, tech investor and entrepreneur Marc Andreessen batted back a question from Fortune editor Alan Murray about the over-the-top …

  1. Grikath Silver badge

    So in other words...

    They can't abuse the stock market for their get-rich schemes anymore, so they've created a private equity pyramid scheme.

  2. zebm

    I must be a lot older than the journo

    I remember how Andreessen made his money so describing him as a VC is rather amusing.

  3. cantankerous swineherd Silver badge

    another factor is welfare for bankers, aka quantitative easing; stacks of cash with nowhere much to go.

    1. joed Silver badge

      Plus 401k and other retirements schemes we're "encouraged" to save money for the promise of future returns (but no guarantee). Few months back I heard of the same practice being proposed for China to prop their collapsing stock market. If you can't attract investors, legislate them (and the same for the model of health insurance that works mostly to the benefit of insurers).

      1. John 62

        same in the UK

        In the UK, everyone working for a medium-sized or larger company is auto-enrolled in a (money-purchase aka defined contributions) pension scheme by law. Where will that money be invested? Government bonds, land and the stock market. It's a win-win! What can go wrong?

        Well, as long as there are no great shocks it's not a bad way to do retirement planning and keep the cash moving around the economy, but from an ownership point of view, it could tip us further into un-checked Boards of Directors territory. Everyone owns the companies/land/government debt, but because it's all done through pension funds, which of them will realistically exercise any authority at shareholder meetings? I know this has been going on since fund managers have existed, but the scale keeps ramping up and capital is being focused into funds managed by people who don't own them and don't want to pay enough in fees to get someone to act in their interests at shareholder meetings.

        1. Anonymous Coward
          Anonymous Coward

          Re: same in the UK

          There is a flipside to the workplace pension scheme, it's stage 1 in getting rid of the state pension.

          It's obvious from the policies of the current rabble (they're all as bad as each other IMO), is to destroy the Welfare state for the benefit of themselves and their mates.

  4. Mark 85 Silver badge

    Of course he would say there's no bubble....

    For him to say there is would probably cause whoever else might invest to not invest. The way most of these VC people work comes across all salesmen for a legalized Ponzi scheme.

  5. Doctor Syntax Silver badge

    Perhaps one of the reasons big companies aren't innovating is that there's only a limited scope for profitable innovation at any particular time.

    The legitimate options for making money from innovations seem to be providing a new service that can be charged for at a profitable level or advertising. If a business like Uber can't turn a profit the first of those seems to offer very little. So is this what the internet has come down to - conning advertisers that its worth paying good money to piss off potential customers? Or as a medium for criminal activity?

  6. Jim McDonald

    "...no more than Shetland Ponies with plastic horns held on by elastic..."

    goes to show they are, first and foremost, very successful PR, Sales & Marketing people.

    1. Pascal Monett Silver badge

      Indeed, they are selling you the wind, and they are the ones getting rich on it.

  7. Captain DaFt

    Wrong video?

    I really was expecting this: https://youtu.be/qRC4Vk6kisY when I risked the ire of the exploit gods and clicked "Activate Adobe Flash" on that video.

  8. Donald Becker

    The story barely touched on one element of the current "valuations", that the investments are structured more like debt than equity.

    Term sheets continue to evolve. A dozen years ago they were merely one-sided drafts that are sometimes negotiated to something more balanced. Now they are absurdly unbalanced in exchange for extreme valuations. A VC might be investing $10M for 1% of a company's authorized shared (a "$1B valuation"), but the term sheet includes a payback provision with high interest rates, strong limits on issuing those authorized shared (or simply control of the board's committee), warrants, anti-dilution provisions for their shares, and every other clause they could think of.

    1. Anonymous Coward
      Anonymous Coward

      This tells me that both the VC and the founders know that the business has a tiny chance of success and they're essentially colluding in a pump and dump that the market has grown wise to.

      The VC has more leverage because money is rarer than 'our app will take over the world' startups, but VCs are finding it harder to push their crap on a world more jaded about Internet stocks.

      When a few of these crash with money returned only to the VC their business model will disappear as founders realise that having a startup on your cv isn't worth years of pain for no eventual return.

      1. Yet Another Anonymous coward Silver badge

        It's perfectly reasonable that a VC should demand 4x preference shares that guarantee their money is paid back 4x before any of the founders or employees, that made the company a success, see anything.

        It's totally different from a loan shark demanding 400% interest - totally different

  9. Christian Berger Silver badge

    Interesting article

    Interesting article, however one line strikes me as odd:

    "And that real value will be built through really good technology, which will be built by really good engineers."

    I don't think the "good engineers" get even close to the Silicon Valley of today. The only interesting jobs there are morally bad, like weapons research or optimizing attention for ads.

  10. streaky Silver badge

    In a Bust

    Probably because the fundamentals of these companies don't match some of the insane market "valuations". If your thing isn't worth what it's valued at it isn't going to sell to anybody sensible.

    We know how to value companies and woe betide any company who thinks they know better. Famous examples, HP's Autonomy acquisition where some smartypants decided they could outdo the fundamental-based market valuation, cue disaster and massive write-downs.

    Or my personal favourite: Twitter. Here's a company that looses money and has never ever shown an investor how it intends to actually turn a profit and the insanity of talking about how many extra users they do or don't add in a quarter when there's no system that can turn those users into money - or at least enough of it.

    We're not in a bust we're in a bubble or a lot of these companies that pull this nonsense would be seeking various forms of bankruptcy protection and pension funds would be left surveying the damage. The key question is if we can stay in a bubble and the answer is yes as long as nobody asks the obvious question which is "where do these valuations even come from?".

    1. Pascal Monett Silver badge

      Re: where do these valuations even come from?

      Directly from Unicorn Land, where everyone has money to burn and nothing can ever go wrong.

      I salute M. Andreeson on one point : at least he is honest enought to clue us in on the true basis of his evaluation by using the terms Unicorns and Angels. Given that nobody has seen either, it is clear that he is spouting bull and just hoping to take in a maximum number of suckers before his latest bet falls on its face.

      Andreeson is not a VC, he is a scammer, and you're the bait.

    2. John Smith 19 Gold badge
      Unhappy

      Re: In a Bust

      <Cough > Facebook.

      1. Voyna i Mor Silver badge

        Re: In a Bust - <Cough > Facebook.

        I really think Facebook's actual plan is to get taken over by the US government as the most comprehensive surveillance system ever invented, which doesn't even need all those operatives spying on you - like the Stasi, they get everybody to spy on other people voluntarily.

        People have such short memories. When did the Wall come down? 1990?

        1. Amorous Cowherder
          Boffin

          Re: In a Bust - <Cough > Facebook.

          Who say "Grin and Brin" ( or whatever they're called ) weren't groomed for the job from birth? They might have had the right connections made available by those high up in government and finance, then encouraged to get Google up and running...

        2. allthecoolshortnamesweretaken Silver badge

          Re: In a Bust - <Cough > Facebook.

          1989. And yes, even in their wildest, wettest dreams the MfS wouldn't have come close to something like Le Livre des Visages or G000gle.

    3. Anonymous Coward
      Anonymous Coward

      Re: In a Bust

      Or my personal favourite: Twitter. Here's a company that looses money and has never ever shown an investor how it intends to actually turn a profit and the insanity of talking about how many extra users they do or don't add in a quarter when there's no system that can turn those users into money - or at least enough of it.

      I thought everyone on the planet already had an account, then decided never to use it.

    4. ArthurHH

      Re: In a Bust

      "Or my personal favourite: Twitter. Here's a company that looses money"

      Downvote for not grasping the simple concepts separating lose from loose.

      1. Yet Another Anonymous coward Silver badge

        Re: In a Bust

        >I really think Facebook's actual plan is to get taken over by the US government

        That's a relief - I thought Facebook's plan was to take over the US government

  11. Ken Hagan Gold badge

    The entire basket of unicorns is worth like half of Microsoft.

    So Microsoft is over-valued. I don't think that's controversial. They only have three products: Windows, Office and ActiveDirectory. Based on the last decade's performance, I'd say the company is dead on the inside and only appears to live on because the rest of the world can't switch away from their three products overnight.

    1. Anonymous Coward
      Anonymous Coward

      Re: The entire basket of unicorns is worth like half of Microsoft.

      > They only have three products: Windows, Office and ActiveDirectory.

      Don't forget the Surface Book. Great specs, 'cept for the crappy OS and lingering driver issues MS can't seem to fix. And the price for a fully spec'd one is... well, actually less than a similarly spec'd 13" MBP. Wonder how well it runs Linux or OSX?

  12. tony2heads
    Trollface

    I have a great idea for a internet company

    For carrying-on an undertaking of great advantage but no-one to know what it is.

  13. John Smith 19 Gold badge

    "good thing for the country," "bad thing for.. people built around making billion-dollar deal."

    Then it sounds like the "market" has got things about right for a change.

    Real people buy shares for 2 reasons. A) Share price rises B) Profit distribution through dividends.

    If A you're hoping you can unload your shares on someone who wants them more than you do. But if they are a good company why would you want to, unless you're looking at some kind of Ponzi scheme? If B again why would you want to?

    These companies seem to be talking P/E ratios in centuries (if they talk about them at all).

    There core assets are a)Bunch of devs. b)Bunch of servers c)Bunch of BS development plans.

    How big a server farm do you need to be worth $40Bn in assets?

    You can't help think that if REL had some VC types around BAe would have put in rather more than £20m for rather less than 20% of the company.

    1. Naselus Silver badge

      Re: "good thing for the country," "bad thing for.. people built around making billion-dollar deal."

      "There core assets are a)Bunch of devs. b)Bunch of servers c)Bunch of BS development plans."

      That's not true. Owning your own servers is soooooo 2005.

  14. ntevanza

    Abused puppy capitalism

    'most public tech companies right now have shareholder bases that do not want them to do new things. And instead want them to give back cash.'

    As a tech shareholder I'm personally pretty tired of tech firms giving back cash. On the risk aversion scale, the managers of public companies are down there with nematodes and abused puppies. Unfortunately, at the other end of this scale you have wolves and parasitic worms.

    Capitalism is great, until it works.

  15. Hans 1 Silver badge

    Uber caught everyone by surprise

    >Uber is worth nowhere near its $40 billion current valuation, but its technology is undeniably brilliant – and getting better thanks to the engineers working tirelessly on it.

    The tech can be brilliant, in multiple countries, however, they have specific laws covering transport services. Requirements must be met and a person wanting to transport people in a car for a fee will have to pay for the right to do so in many countries ... Uber France is dead or about to be slain, and that is just an example.

    Car pooling services where you pay a fee for the trip are next to be investigated.

    Note that I have no opinion on the merit of such laws, just saying ... taxi service providers across the globe who pay humongous amounts of establishment fees etc are pushing hard for the laws to be applied to phoneApp taxi services as well.

  16. Spanky_McPherson

    Uber's technology is undeniably brilliant???

    Living in the provinces, I have never used Uber. So can someone tell me what is so special about the technology?

    From what I have read it seems pretty straightforward.

    1. Anonymous Coward
      Anonymous Coward

      Re: Uber's technology is undeniably brilliant???

      is it really anything special? I don't really think so either.

      Just don't say that to the licensed cab people like LTDA, they may awake with a nasty surprise, realise they're not in the mid-20th century any more, and use some rude words.

    2. JetSetJim Silver badge

      Re: Uber's technology is undeniably brilliant???

      It is straightforward, but it's also "on an internet" and, even better, "on your web-phone", so the valuation gets bonus multipliers.

      Saying that, it's a simple idea that wrecks the business model of established players, hence the fuss. Established, regulated players are insisting that the newcomers play by their rules, rather than question whether the rules are still relevant. Personally, if a driver is qualified, and the car is insured according to local laws, then does it matter if a cab is black or not - especially if there's a simple way to demonstrate that the route it took is within reason for the trip requested and not routed in a roundabout way to bump up the fees.

      But Uber may well go the same way as the apps (e.g. Peerby is just one of many) that let you know someone had a power-drill to borrow in the same neighbourhood, so you didn't need to go out and actually buy one (apparently the average power drill is used for 12 minutes in its lifetime, so there should be plenty knocking around going spare). If too many jump on the Uber bandwagon, then (a) there won't be enough to go round for anyone to make a living from it, and (b) the streets will be so congested with Uber drivers no-one will get anywhere. But you could take the viewpoint that it will settle down eventually, via the foxes & rabbits analogy.

    3. ST Silver badge
      Devil

      Re: Uber's technology is undeniably brilliant???

      >So can someone tell me what is so special about the technology?

      Nothing. On the front-end it's an app for calling a cab. On the back-end, it's a cab dispatcher.

      In today's Silicon Valley, this is considered brilliant, disruptive, innovative, take your pick for a hype buzzword, and it's worth USD $40 BEELION. The company has never made any money.

      When I was in college and then grad school, the college towns where I lived each had a cab company. I could call a cab from any phone, even from a public phone. I would talk to a dispatcher, and then a cab would show up. Nobody considered that technology innovative or disruptive or brilliant. Those college town cab companies had to make some money to stay in business, but they weren't valued at USD $40 BEELION.

      1. Anonymous Coward
        Anonymous Coward

        Re: Uber's technology is undeniably brilliant???

        >So can someone tell me what is so special about the technology?

        Nothing. On the front-end it's an app for calling a cab. On the back-end, it's a cab dispatcher.

        In today's Silicon Valley, this is considered brilliant, disruptive, innovative, take your pick for a hype buzzword, and it's worth USD $40 BEELION. The company has never made any money.

        Well, it is disruptive. Maybe innovative, certainly not brilliant.

  17. billse10

    VCs, crowdfunding etc

    this .. in a world where people try to crowd fund railways?

    https://www.startnext.com/locomore

    Then again, maybe that's probably better than the nineteenth century railway mania, boom and bust .....

  18. Anonymous Coward
    Anonymous Coward

    Some people would *like* to be in a bust...

    For example.

  19. Eddy Ito Silver badge
    Coat

    He's absolutely right

    I picked up a basket of unicorns last night for only $97.50 from the deep fry takeaway shop down the street and they threw in a bucket of buffalo wings and chips for free!

    I've the slip to prove it in my pocket right... Maybe it's in me other coat.

  20. allthecoolshortnamesweretaken Silver badge

    The alchemists of old tried to tum lead into gold. These guys found a way to turn BS into $$$$$.

    BTW, from where I sit, there is a difference between an investor and a speculator. And it looks like at least in the Silicon Valley investors are nearly as rare as unicorns.

  21. Cuddles Silver badge

    "it was the realization that with the internet you could reach anyone on the planet that caused people to lose their minds. Companies conflated possibility with reality."

    "but this time it is driven by the combination of the internet and smartphones. Not only can you get to billions of people, the optimists excitedly tells themselves, but you can get to them all the time on a device they carry around with them"

    I don't think the two are really comparable in that sense. In the former, saw the possibility of reaching billions of people but never managed to actually achieve it. In the latter, the possibility of reaching billions of people on devices they carry with them actually has been achieved. The problem is not that the dream of reaching so many people still fails in reality, but simply that reaching lots of people has never been enough in and of itself. The money was never there either now or in the previous bubble, but last time everyone fell at the first hurdle so they didn't even notice the second one that we've now reached.

  22. tk666

    "The reality: huge sums of money are being spend on small biz" is this some kind attempt at a Xenophobic joke or indicative of the care taken in writing this article?

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