Bubble Trouble

Funny juxtaposition. The media cannot get the story straight. First the WSJ publishes a Serious Editorial that Few Businesses Sprout, With Even Fewer Jobs, especially from a dearth of venture-capital startups. They added a nice chart (below), and made this assertion:

Venture-capital firms that typically invest in young companies, as well as angel investors that focus on early-stage start-ups, are pulling back as they struggle to sell the companies they already own.

Then the NYT opines As Technology Deals Boom, the Talk Turns to Bubbles, which makes this assertion:

Is the world ready for another Internet bubble?  Ready or not, it appears to be coming. In fact, it may already be here. And it seems to look, not surprisingly, like the last Internet bubble.

The NYT is tracking a storyline emerging from Silicon Valley, of the SuperAngel bubble that I have been reporting on. Last week at the Web 2.0 conference in SF two leading venture capitalists faced off for a discussion of whether this was a bubble or not. The facilitator hoped for a SuperAngel smackdown, and instead got a fairly good discussion of what is bubbling in Silicon Valley (and Silicon Alley in NYC). 

On the SuperAngel side, Fred Wilson of Union Square Ventures said he had seen irrational bidding up of deals, and was worried. He had blogged that he was seeing Storm Warnings of too much capital pouring into deals:

I think the competition for "hot" deals is making people crazy and I am seeing many more unnatural acts from investors happening. If it were just valuations rising quickly, I'd be a bit less concerned. But we are also seeing large deals ($5mm to $15mm) getting done in a few days with little or no due diligence. Investors are showing up at the first meeting with term sheets. I have never seen phases like this end nicely.

On the traditional VC side, John Doerr of Kleiner Perkins, the very model of a modern venture capitalist, sees this as the beginnings of a new tech boom, not the blowoff top of irrational exuberance as in 2000. He concludes with:

Booms are good!

While it comes across as a Gordon Gecko sort of comment, I think John has the better of this argument. The reason the SuperAngel bubble is not showing up in the WSJ stats is that it is a very small phenom right now, nothing like the dot-com bubble.  A bubblet, not a bubble. This is how new tech booms start, and it adds more support for a coming tech boom that will rival the PC craze from 1978-83 and the dot-com mania from 1995-00. 

Comments

[sean]

Hey Yelnick, what technology boom are you talking here? Internet and mobile and Ipad/IPod? Cloud? VMWare?

From my electrical engineer's perspective, there have been minimal technology break through for the last decade. Web 2, IPod etc are just Technology E-N-H-A-N-C-E-M-E-N-T. They make things smaller and more efficient. If you dig underneath the cover that fool most people, the underlying tech and hardware and algorithm are Nothing NEW.

For example. TCP/IP communication protocol is a REVOLUTION (and believe it or not it still rules the world today in many aspects). So is the first computer. Electricity.

The latest I ever know was lightning REVOLUTION of LED (2 years back I had repeatedly said it here), example is the company CREE.

Maybe Health Care is next with medical imaging/human DNA breakthrough? But please, Cloud, IPod, WEB 2 are for kids who has no clue about real engineering and technology.

[yelnick]

sean, the next boom will be the "social mobile" one. No one has a good cute phrase for it like "dot-com" but they didn't in 1993 either. If you click on the Venture Capital tab at the top and scroll down some recent posts, you will see the technical foundation for this boom: the core infrastructure of cloud services, open source and widespread adoption of smartphones/browsers has moved the value creation level to the apps layer. The value creation is real; Zynga could exit its third year at over $1B run rate of revenue.

The driver of the PC craze was the microprocessor. The driver of the dot-com mania were improvements to the modem & codec. The driver of social mobile is connected device.

[Michael]

"Maybe Health Care is next with medical imaging/human DNA breakthrough?"

Agreed.

There is a ton of advancement going on in the area of cancer screening and the use of DNA.

[OracleLurker]

I seems like we are at the point of diminishing returns with Moore's law and the reach of the microprocessor into everyday life. How much does the "social" really add to the "mobile" part of the boom? I'm thinking the entire social networking space has the potential to IPO maybe 3-4 winners, but only facebook with s&p 500 potential. If they aren't going to get them out the door for another 8-12 months then I think what is playing out this time will only amount to a boom for the VC's and Angel's that manage to dump these companies on the public at the conclusion of this bull market.

[Wave Rust]

Yel
two questions for you.

=since tech and tech booms/bubbles don't have 100 years of cyclical history, how do you or can you extrapolate another tech bubble into another broader market bubble or bull market going forward into this new decade (in spite of Obama)?

=sooner or later, the ownership of personal data on somebody's network, such as Google or facebook or future social nets, and the collection, usage and storage of that data is going to become a very big issue.

Not until somebody's 'shocking' use of it becomes public, but when people realize how much they have divulged and can't take back due to ownership issues, how do you see that inevitable issue becoming a national conflict and the consequences?

I see it sort of like how people have allowed the Fed's and the TSA do anything they want to them, until it goes too far, and pushback begins. Or, the Tea Bag movement.

Bad things haven't happened yet to many people in the social nets ,,,, but it's going to come. It's like that guy who jumped off of a 20 story building and at the 10th floor, he thinks "so far, so good".

wave rust

A small under the radar incident like Googles wifi and personal data recording, while driving through America doing the "Street view" recordings, is one of several in recent months. They said it was accidental ,,,, riiiight!

[yelnick]

Michael, I hope there is some sort of medical breakthru. We have had imaging since the 80s, and altho it is improving, the foundation of a huge new economic sector is not there. We have decoded the genome and found it means little - there are layers on top that escape understanding. We have tried stem cells and again no breakthru. When the new factor of production emerges, it can be seen before the boom. We have yet to see it in medical. Indeed, the headwinds are increasing against medical breakthru's, with more regulation, slower FDA processes and less return due to price controls.

[OracleLurker]

That's depressing indeed. That to me would be a boom to get excited about.
Groupons and Farmville? not so much.

I think the latest office episode was on point with WHOUF.com

[yelnick]

Oracle, as to social being only 3-4 winners, it is always such before the boom. Cycle back to 1977 before the PC boom or 1993 before the Internet. HArd to se any winners besides Apple in 1978, and we had Cisco, AOL and really nothing else on the horizon in 1993. By 1995 we could touch and feel the explosion. 

Today we are in circa 1994 for the social mobile boom.

Already it has become clear that the smartphone is the next PC. Apple is cleaning up in the early stages. And Android is coming on strongly, with the expectations of Android-connected devices being the ubiquitous winners as were PCs in the '80s. Count the numbers of users & apps and the mobile mania can eclipse both the PC craze and the Internet boom.

Add on social and we see a whole new world of apps and communications that go beyond email, web and texting. Social networks add a very low cost way to acquire customers. Groupon - the group discount coupon - is said to be about to be bought by Google for $2-3B. Facebook of course, but Twitter is growing incredibly fast. and Zynga is considered the best deal ever by Kleiner Perkins, which backed AOL, Google among others. The number of Billion Dollar Babies in social is growing much faster and well beyond the 3-4 you expect - already!

Yes, the IPO market sucks, especially due to how badly we have hampered it. But a whole new world of secondary purchasers has emerged to fill the gap. I saw today that options have begun on Facebook secondary shares - without an IPO! The founder of Facebook has pulled out a lot of wealth - I think over $1B so far - prior to an IPO, from the secondary buyers of Facebook shares. Same phenom is helping Zynga and other social stars get liquid without the IPO.

To paraphrase a great line from Jurassic Park, markets will find a way ... 

[yelnick]

wave, let me comment on your two questions:

1) since tech and tech booms/bubbles don't have 100 years of cyclical history, how do you or can you extrapolate another tech bubble into another broader market bubble or bull market going forward into this new decade (in spite of Obama)?

first, tech booms can happen without the surrounding broad market boom. we might see that here, with the Naz doing much better than the Dow. the PC boom started in 1978 and ended in 1983, just as the great bull market of the 80s was taking off.

second, tech booms fit into the broader Innovation Cycle that is sometimes called the Long Wave or the Kondratieff Wave. At the end of K-Winter some new factor of production drives the next boom, the K-Spring. think broadly about "tech" and you will see it: 1790s canals, 1840s railroads, 1890s, steel/oil/electricity, 1950s jet age

hence: the social mobile boom is likely to come before the next broader market boom, but may be the foundation for the next wave across society as the use of social mobile extends into industries beyond tech

2) sooner or later, the ownership of personal data on somebody's network, such as Google or facebook or future social nets, and the collection, usage and storage of that data is going to become a very big issue.

first, I certainly agree; the question is how will it manifest? remember how the 1960s led to fears of computers watching all. If you go back in history, the car certainly challenged norms of privacy, in this case by letting hormonally-excited kids escape their parents clutches - parents didn't like it. Before that, the telephone was considered a terrible intrusion on quiet evenings at home. Today we revel in the glories of those violations of privacy, since our sense of privacy has changed

second, I see the TSA groping issue as a classic reason to fear over-reaching government actions. the grasping hand of govt has to be slapped back. many of the issues that lead to such intrusion could be solved with the use of social mobile technologies, such as quick e-verifying of who people are before subjecting them to this nonsense.

hence: social mobile is the solution, not the problem

[Account Deleted]

ES Chart Before opening bell
http://niftychartsandpatterns.blogspot.com/2010/11/s-500-chart-with-important-support.html

[Wave Rust]

yel,

maybe we'll see a tech boom applied to numerous industries,,,, in their processes, in marketing/sales communications processes.

tech adoption is slow in some industries, but rapid in others. It seems the people/industries who wait to see success of a technology, end up making the better application or buying decision.

For example, the channelized Sirius satellite radio that was forced down onto auto consumers. It's evolved a little as to consumer choices. Or, how about the cable TV providers forcing analog TV into the dust bin of history.

To me, it's like the US is in a tech gap between the next wave and the old wave of tech. Breakthroughs that "go to the next level" (wherever that is) have not been happening for quite awhile. So, we have to wait for the next 'Jet Age' to arrive. If it deals with a real jump in potable water and energy sourcing, then a transformative "age" may begin.

As for the personal data issue, the manifestation will have to be traumatic to many people, like the Fed's health database hacked and used for some evil purpose. Or, the Pentagon is hacked again and truly compromised,,,, then Obama can declare marshall law and shut down the internet,,,, right before the 2012 election. LOL

The pressure is on the individual's personal security from too many quarters and all of government is a major force in that pressure. The push is to RFID type controls and sold to the sheeple as "protecting you from that guy standing next to you in the soup line". :)

just my ramblings in a flat boring correction. :)

wave rust

[yelnick]

wave, they key to understanding the next tech boom is to realize that the Boomers no longer rule the roost. For 40 years Boomers have set trends on fire. Now the mantle is passed to the Boomer kids, the Millennials, born between Morning in America (1982) and 9/11 (2001). They are the ones who are adopting the social mobile technologies, not the Boomers. They see the revolution since hey are the revolution. This revolution will not be televised, it will be youtubed.

[da bear]

yelnick,

I think a new mini-tech boom can happen. But I think it won't start getting going for another two or three years. Well, if the global economy is facing its own 1931 next year, then the US economy could bottom out by the end of 2011 if we are the new Great Britian, or in the summer of 2012 which is when the US bottomed out (summer of 1932). I still think that the Crash of 2008 was the new Crash of '29, with the rebound since March 2009 being a sort of 1930 sucker's rally.

Finally, I finished reading the latest Elliott Wave Theorist. It's long term count on gold is what I have been saying for awhile. If the rally in gold is over, or near over I have a couple of downside targets. However, the current implications for gold may be stunning. The downside may be closer to Prechter's numbers. Also, ELLIOTT WAVE PRINCIPLE by Frost and Prechter referred to the wave 4 of the mid-Seventies where gold peaked in a new nominal high (wave 3), dropped, then rose again to a slightly new all-time nominal high ($178) on bullish fundamentals, then dropped steeply to $103 to complete C of 4 down. Then, of course, gold rallied to $850 in a couple of years. Surprised that EWI hasn't talked much about that. Gold seems to be in a 'B' wave of some sort. However, I am thinking now that it is in a BIGGER 'B' wave than I previously thought.

I would love to hear your opinions on gold if you have any. Thanks!

da bear

[yelnick]

da bear, on the tech boom, the "froth" in valuations is happening at the earliest rounds only.Usually this will hit the later rounds about 18 months out, and hit exits about 2-3 years out, so your timing on when the tech boom becomes visible is consistent.

on gold, I do not focus on it & have no thoughts on its wave count

instead, consider this:

- if the world forced the US back on gold, the price to clear markets is around $8k per ounce, based on covering the monetary base

- even if Prechter deflation comes, gold may not respond as it would have in the 1930s since we are off the gold standard .. it could stay high or rise as a hedge against poor government policies & expectations of a new gold standard

- the Dollar has been backed by oil since 1973, not explicitly but because the oil trade is in Dollars and the rest of the world needs to hold the buck to buy the juice

- the BRIC countries (well, maybe not India) are moving to get off the Dollar as a reserve currency

= bullish for gold

[Sobranie]

Honestly I think that the next long term boom will be in medical field. We "just" mapped our genome, and still have so much data, that we are forced to throw it away, there IS going to be a critical mass of understanding DNA that the industry will propel at the rate not seen before. Forget about pharma, or even medical devices. Our bodies know what to do, we just need to figure out how to enable it.

As far as technology goes, what do you think all the retiring baby boomers will do in their spare time? 1. Spend next 10 years consuming all the content on the internet. 2. create a backlash of younger generation that will shun some of the social networks. 3. Expect more very specialized social networking communities. Whoever can harness all these different niches and make use of them in a way where privacy is respected will make a killing. I am not sure if Facebook is up to the challenge.

[Michael]

"there IS going to be a critical mass of understanding DNA that the industry will propel at the rate not seen before. Forget about pharma, or even medical devices. Our bodies know what to do, we just need to figure out how to enable it." - Sobranie

Agreed 100%.

There are some VERY exciting things going on that most people are not even remotely aware of. Thank you for your post!

[Michael]

"Indeed, the headwinds are increasing against medical breakthru's, with more regulation, slower FDA processes and less return due to price controls." - Yelnick

I'm sorry my friend, but you are wrong about slower FDA processes. In fact, the FDA and CMS have just authorized an opportunity for pharma, bio-tech, and medical device companies to seek "dual-pathway" approval. This will take AT LEAST 18 months out of the approval process!

[yelnick]

michael, I hope you are right about the dual track. People I know who invest in or manage biotech companies are skeptical. Certainly something like that is needed to speed up a terribly slow and complex process.

[yelnick]

Sobranie, the social mobile revolution is being driven by the Millennials, not the Boomers. I do agree that sitting back (with Kindle or iPad) and consuming digital info will be a major use of Boomer time. I am skeptical that a great company can be made in social mobile by targeting them specifically. The closest so far is Zynga, whose social games target the lonely and bored. TV viewing of soaps is down partially due to Zynga games.

I hope you are right about genome/stem-cell breakthroughs. I am skeptical here because so little has come out so far, and a lot more needs to be understood.

[Mamma Boom Boom]

>I still think that the Crash of 2008 was the new Crash of '29, with the rebound since March 2009 being a sort of 1930 sucker's rally.<

da bear, the fundamentals point to a different era, The South Sea Bubble.

[OracleLurker]

I still think that the Crash of 2008 was the new Crash of '29, with the rebound since March 2009 being a sort of 1930 sucker's rally.

da bear, the fundamentals point to a different era, The South Sea Bubble.

I thought the late 1938 bull market analogy made sense too - but the summer correction and subsequent blast higher don't really fit that period very well. I now realize that World War 2 was kind of a big deal - bigger then anything we are dealing with today - and that probably was what caused the late 30's bull market to end prematurely.

[Account Deleted]

Dow Jones analysis after closing bell
http://niftychartsandpatterns.blogspot.com/2010/11/dow-jones-analysis-after-closing-bell_25.html

[option poppers]

Everybody wants to be rich.So they get into stock trading or other businesses.But whatever business we may do we must be smarter than others to succeed!!!For stock trading we can succeed with the help of premier option advisory services which provides best guidance regarding stock marketing!