The question is no longer whether we are in a tech bubble—we are—but rather what it all means for the future. And maybe the near future. Everyone seems to agree the market conditions are very different from 2000, but so what?
Uber’s valuation is north of $40 billion, and the company is losing money as it expands. WeWork’s valuation is $10 billion, as co-working spaces and corporate accelerators keep booming. Meanwhile, China’s stock markets are crashing, and Greece is home to the latest European debt crisis.
Here’s a sampling of smart takes on the greater economic forces at play:
—Investor Andy Kessler and others point out that the dearth of U.S. tech IPOs (only 8 or so this year) means a lot of companies with huge wads of cash aren’t being forced to be disciplined in their spending. He writes, “A bubble is not created by high valuations. A bubble is a psychological phenomenon in which investors are tricked—by the company or themselves—into believing that a profit stream is sustainable when it really isn’t.” (And who’s profitable today, anyway?)
—Columnist Christopher Mims counters that relatively small amounts of money from big investors like hedge funds are inflating the current bubble. When the inevitable downturn occurs, he says, it shouldn’t be as scary as 2000. Look for most private “unicorns” (companies with billion-plus valuations) to die off; the question is how many viable startups and mid-stage companies will also be in big trouble for lack of cash.
—Startup advisor Tallat Mahmood says that the tech bubble is about to burst and that the industry is in denial: “The tech startup space at the moment resembles the story of the emperor with no clothes.” Putting it that way is certainly not in his, or many others’, financial interest, which makes it all the more credible.
—Techstars Boston head Semyon Dukach, who has seen some bubbles in his time, writes about the dynamic between early-stage investors and “overpriced” late-stage rounds. When investors you trust are talking about both early- and late-stage valuation bubbles, something is up. (See also Mark Cuban.)
—Stony Brook finance professor Noah Smith warns that the danger isn’t that we’re in a unicorn bubble, or even a tech bubble. “The danger is that we’re in an Everything Bubble,” he writes, citing the Chinese stock market crash and the potential for valuations to be way too high across the board (see something called the Shiller CAPE ratio).
—Lastly, some perspective from the biotech world, where there has been a torrent of IPOs in the past couple years, as well as plenty of bubble talk. Most of the companies going public don’t even have therapies on the market, and many will end up failing. But this spring, my colleague Alex Lash wrote that the biotech industry needs a different metaphor from the all-or-nothing bubble: “When the inevitable correction comes—and far be it from me to try and predict when or why—there are signs the sector is strong enough to make it a gentle one.”