Don’t tell Warren Buffett, but apparently Silicon Valley’s start up sector is selling at dirt cheap valuations. At least according to Marc Andreessen. We’re in a long-term tech bust,’ not a bubble
“I think we’re in a bust. We’re in a long-term technology bust. I think technology has been undervalued since 2000, and we’re still undervalued,” Andreessen said. “The entire basket of unicorns is worth half of Microsoft.”
Well, I am sure if these so called “unicorns” had the same revenue/income base as Microsoft does, innovation or not, they wouldn’t be as “cheap” as Mr. Andreessen claims.
Considering the above, should you run out and start investing in tech startups?
Not so fast. First, here is what another industry insider, Marc Cuban, has to say about the sector.
Mark Cuban is dead on in identifying Silicon Valley’s Tech Bubble 2.0: Why This Tech Bubble is Worse Than the Tech Bubble of 2000. At the end of the day, Silicon Valley has about as much liquidity as California’s dried up reservoirs. Something that Angel investors, venture capitalists and stock option millionaires are about to find out.
How big is this bubble? Consider the following. Uber’s valuation went from $60 Million in 2011 to $50 Billion today(not a typo). They must be making a ton of money…..right?WRONG. Bloomberg estimates that Uber showed $470 million in operating losses with $415 million in revenue last year. Plus, the company was set a major legal blow in California by requiring their drivers to be classified as employees. And as far as I am concerned, it is just a matter of time before other states and countries regulate Uber out of business to protect taxi drivers.
In other words, the valuation above is not only outrageous, it is, how should I put it, retardedly outrageous.
Back to Mark Cuban. It is now evident that most market pundits out there are dismissing Mark’s view. And while Mark talks about Angel Investors and illiquidity in that market, his analysis can just as easily be applied to today’s stock market. More about that in a second.
First, here is what most people don’t realize about Mark Cuban. After selling his first business Mark became a heck of a trader and investor in the 1990’s. His returns were so good at the time that Goldman Sachs tried to bring him in order to figure out what he was doing. This same ability helped him unload Broadcast.com for $5.7 Billion to Yahoo right at the top of the tech bubble. Here is what he thinks.
I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher. Why? Because there is ZERO liquidity for any of those investments. None. Zero. Zip.
So why is this bubble far worse than the tech bubble of 2000 ?
Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity. If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?
We often talk about the stock market, but we rarely look at this side of the equation. Mark is absolutely right. If you are an Angel Investors, good luck getting your money out. Especially when today’s Silicon Valley’s bubble bursts. Plus, the chances of hitting a good exit in tech are about as good as winning a lottery.
What’s more, the bubble Mark Cuban has identified in the tech industry is the same bubble I see in the stock market. The drivers behind both are the same. The only difference is the amount of liquidity available.
