Wall Street, mega tech valuations and you

Which came first, the high-risk tech-investing environment, or the money that Wall Street is throwing at it?

Two news articles over the weekend looked at all the money that’s being made or expected to be made in the tech industry (a lot), who’s looking for their slice of the pie (everyone), and how it all could come crumbling down.

First, Bloomberg News reports that hedge funds and mutual funds are doing their share to drive tech companies to unheard-of valuations. Ride-sharing app Uber, $40 billion. Disappearing-photo app Snapchat, $15 billion. The list goes on.

“Some of the valuations are mind-boggling,” Sven Weber, investment manager of the SharesPost 100 Fund, tells Bloomberg.

Why should the average person care about these companies and those stratospheric numbers? Because 1. The steeper the climb, the harder the fall, and 2. Your retirement account may be tied up in it. Pension funds are investing in the tech sector. The New York Times reports that mutual funds are “racing to get in” to buy shares of private tech companies.

From the NYT article:

Over all, there were 29 deals last year in which a mutual fund bought into a private company, and they were worth a collective $4.7 billion, according to CB Insights. That was up from six such deals, worth a combined $296 million, in 2012.

About half of the investors who put $59 billion into startups last year weren’t venture capital firms, Bloomberg reports, citing data from research firm PitchBook Data.

The money managers insist they know what they’re doing.

“We’re nowhere near the two guys in the garage,” Andrew Boyd, head of global capital equity markets at Fidelity, told the NYT. “We are near companies with hundreds of employees and billions of dollars in revenue.”

But there’s this, from Bloomberg:

In the past four months, cloud-storage service Box Inc. and Hortonworks Inc., a data-services provider backed by Yahoo! Inc., went public at valuations lower than their last private-funding rounds.

And there are plenty of worrywarts: Marc Andreessen has warned of vaporization ahead as startups spend and spend as money comes pouring in. Adam Valkin, a partner at VC firm General Catalyst Partners, gives the boom one, two or three “very good years ahead,” but then urges caution. And Mark Cuban says this tech bubble is worse than the one in 2000 because of the sheer numbers of investors in the industry, and “the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.”

 

Illustration from MCT archives

 

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  • Adonal Foyle

    Here we go again: just like the late 90’s. Clock’s already ticking on this new tech bubble. It’s less than five years now and it’s hastened by East Coast journalists who pronounce opportunity(!!!) in tech as if the last bubble didn’t exist. Lets hope rational thought and calm prevail in Silicon Valley as the hordes of Wall Street suits come this way (again). Sure will be a lotta pinstripes walking around on El Camino Real in the coming months. As for me, I will take what little I make every month and bury it in a hole inside of a plastic jar just in case the Ubers and Pinterests of this new economy take a dump (this will happen soon enough).

 
 
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