During the dot com bubble, I was working in venture capital in Boston and London. San Francisco, then, was awash in enthusiasm, traffic, and, well, money. The bottom fell out in 2001. Today reminds me of that era, especially because a lot of dumb money investors -- ranging from mutual funds to hedge funds to sovereign wealth funds -- are now pouring money into start-ups and pre-IPO companies like Snapchat ($10 billion valuation), Uber ($40 billion valuation), etc. The main reason for this, as described here, is cheap money fueled by low interest rates, as well as the search for growth. I call it dumb money because when investors who are expert in public markets move into private market growth investing, they dont have the skill sets to assess the risks or to do proper due diligence. Uber is valued at 10x revenue. Ive stared at many valuation models in my life, and can say conclusively that that number is held together by a fragile psychology, and thats it. Get ready for a correction -- its coming soon.
Posted on: Tue, 30 Dec 2014 16:55:24 +0000
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