Philip Delves-Broughton

Bubble 2.0

Ten years after the dot-com bust, investors are wild for the web again

There is nothing more maddening to an old-school investor than a bubble. And especially a bubble in which young people are getting outrageously rich. But here we are, 11 years after the last technology bubble popped, in the midst of another of those exuberant moments. Facebook valued at $75 billion. Groupon, a three year old coupon business, at $25 billion. College dropouts with a knack for programming and a devilish knowledge of our online behaviours are suddenly worth more than a roomful of Goldman Sachs partners.

The valuations are crazy, the value investors splutter. There are real businesses with real earnings worth nothing like these shooting stars. It’s immoral! Well, maybe.

The most dangerous thought in any bubble is ‘this time it’s different’. Every bubble, tech or otherwise, reflects the same phenomenon, a wild divergence between price and value. In the early 1980s, Wall Street was infatuated with any company with the suffix ‘-onics’. In the late 1990s, it was companies which promised to rule the new-fangled internet. Which told investors not to worry about revenue or profits, because they were the new paradigm. Give them the money so they could build the brand. Everything else would follow. For a few it worked, for most, not.

So what’s happening now? A month ago, a good friend of mine went to Los Angeles to pitch a company in a start-up contest. In the audience for his pitch happened to be the actors Ashton Kutcher and Demi Moore. They loved the pitch and tweeted about it. Since they both happen to be among the most followed tweeters in the world, word quickly spread. By Tuesday, my friend Bo was fielding term sheets from several investors. It wasn’t just Ashton and Demi any more. It was Silicon Valley’s finest. Some of the earliest employees at Google, now investors of their own vast fortunes, wanted in.

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