Remember the good old days when Uber was only valued at $50 billion? Back in December? Not mentioned in the article, but hammered on by Pando and others, is the fact that much of the late-stage VC investments comes with guarantees - as in, "here's my million dollars but if you don't IPO and make my stock worth at least a million two, you owe me my million dollars back regardless of where your stock ends up." How do you think that's going to play out? Dan Lyons stops just shy of describing Tech Bubble II as a case of chronic wealth transfer from underpaid, overworked college graduates to venture capitalists and entrepreneurs. The "exit" of the average startup kid has absolutely nothing in common with the "exit" of the average founder or early-stage investor. Oh, well. What could go wrong?The biggest elephant in the room is Uber Technologies Inc., valued at $62.5 billion. The company claims it is profitable by some measures in North America, but it is spending huge amounts of money to capture markets in China and elsewhere.
Into companies that don't make money, duh. There's no mystery about that. If VCs own 10% of Uber, and Uber is valued at 62 billion, that means that $6.2 billion dollars has been given to Uber. The actual number, by the way, is nine billion. You might be asking "why?" well, son, because there's no real money to be made in the stock market at the moment. Hedge funds are sucking. Mutual funds are sucking. Even index funds are sucking - all the major US indices have been flat for the past year or more. Bonds? Nope. Energy? Puh-leaze. So let's go play "qualified investor" and throw our money at some of these crazy-hot startups. But how do you decide which crazy-hot startup? Certainly not on fundamentals because none of them make money. None of them even have plans to make money - it's all about selling stock. So which ones are likely to survive? Who the fuck knows? For every Facebook there's a Secret. There's ten secrets. There's a hundred secrets. So investors are increasingly reliant on "spray and pray investing" whereby you give one million dollars to one hundred companies hoping that one of them will be worth $110m and lookitthat - you made ten percent. Never mind the fact that you kept 99 bad ideas going for another month, you're "creating jobs" and "advancing the idea economy". And maybe two of those bad ideas will sell to another bad idea and you'll get to consolidate three bad ideas into one bet that someone else will buy and then you can make fifteen percent. Perhaps the bigger question is "where is this money coming from?" Know how ever since OWS people have been whingeing about the 1%? Everyone's griping about CEO salaries and the like? The rich get richer and the poor get poorer? Meanwhile millenials are doing 2-year unpaid internships so they can put "associate editor at Buzzfeed" on their resume? Yeah, that's where it comes from. And it'd be one thing if the kids on top were at least starving millenials like everyone else but they aren't, they're the sons and daughters of privilege, same as it ever was, and if this is what makes them happy at least it's a tax write-off. The biggest question of all, however, is what happens next? because the recent boom in the stock market? yeah, it's almost a third short interest.. VCs are not funding any longer. The Fiscal Times is literally whining about consumers not spending. But have no fear, friend, because now we can skip all that "accredited investor" bullshit and you can pile your 401k into the next Pets.com just as if you were Kleiner Perkins.