From Economic Policy Journal:
Less than a decade after the dot-com bust taught Wall Street and Silicon Valley investors that what goes up does not keep going up forever, a growing number of entrepreneurs and a few venture capitalists are beginning to wonder if investments in tech start-ups are headed toward another big bust.Two things are happening here.
The chief evidence, according to industry experts and analysts, is the way venture capitalists and established companies are clamoring to give money to young companies, including those with only a shred of an idea. They are piling into me-too start-ups that imitate popular Web companies that already received financing. Companies that involve social shopping, mobile photo sharing and new social networking are finding it easy to attract investors because no one wants to miss the next big thing...Fred Wilson, a prominent venture capitalist, said he had watched the trend accelerate over the last six to nine months. “I am seeing many more unnatural acts from investors happening,” he said in a recent blog post. He attributes it to competition among investors eager to participate in popular young start-ups. And he notes, “I have never seen phases like this end nicely.”
No one really knows if there is a bubble until after one pops. Nevertheless, there are many signs of froth. For example, enthusiasm for closely held Facebook shares has run so high that private investors are trading derivatives of it.
First, the extreme desire to hold cash that was present during the financial crisis is melting away. The sexy industries, such as those in Silicon Valley, are going to be among the first to benefit from the unthawing....MORE