Y Combinator founder: There is no tech bubble

February 17, 2011 11:11 AM
Matthew Lynley
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There isn’t a budding tech bubble like the one that caused a recession in the early 2000s because companies today are better than they were a decade ago, according to Y Combinator founder Paul Graham.

Graham posted an article on news aggregator Hacker News, a site frequented by entrepreneurs and investors and run by Y Combinator, in an apparent effort to quell fears of a looming bubble. He responded to a poll on the site that suggested most of the site’s readers thought that Silicon Valley was in a bubble.

“Back in the ’90s I was sure there was a bubble happening, and was notorious for telling everyone to sell,” Graham wrote on the site under his alias, “pg”. “And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don’t think that now, and I don’t think anyone else does either.”

There are some concerns about a new tech bubble as some startups have reached titanic valuations — Twitter, for example, was recently reported to be worth around $10 billion — without having a business model nailed down. But those cases are few and far between, and there are fewer investors in those types of companies than there were in the late ’90s, Graham said. The amount of money companies are raising today — relatively speaking and adjusted for inflation, naturally — is less than what companies were raising during the last tech bubble, he said.

“In the ’90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs,” he said. “Now it’s Yuri Milner investing in a company run by Mark Zuckerberg.”

Most readers taking the poll said they believed that a tech bubble was forming, but didn’t believe that Silicon Valley was actually in a bubble yet. The most popular choice after that said that the valley was definitely in a tech bubble. Around a quarter of the readers on the site thought the technology elite were overreacting, but there was still the possibility of a bubble.

  • http://twitter.com/mkronline Michael Robinson

    bubblin'If there were a bubble about to burst and anyone could see it, you'd see some of those prescient people bailing from the market and waiting to buy surviving stocks at the bottom.But I'm also not prescient, so who knows. Isn't uncertainty exciting? :)

  • youngVC

    Sorry PG but I have to disagree with you. The bubble was a bubble because of VCs , aka smooth talking MBAs, convincing public markets and LPs their portfolio companies were worth way more than anyone could conceive hence the bubble popping; every one was drinking the cool-aide. That appears to be the case today arrived at in a very different fashion. It is yet again dumb money (the real issue) rearing its head in the form of a few massive funds managed by few and a lot of smaller funds that raised on the market run up prior to '08 (not too hard to do). The icing on the cake is that silicon valley is perpetuating their own bubble again by scoffing at Wall St. and staying private or through the onslaught of M&A activity all enabled by DUMB MONEY! This problem is only compounded by Secondary Markets and Special Purpose Investment Vehicles by the likes of Goldman Sachs, JP Morgan, Advanced Equities etc. One perfect example of the insanity is KPCBs investment in Facebook…I'm pretty sure they've already written off that investment.

  • jhdoyleii

    There is clearly a bubble on the consumer side, but there is not a bubble on the enterprise side. At the end of the day, cash is king and the digital media companies on the consumer side do not make much cash (Facebook, Twitter, Groupon). How do I know? I don't, but if they were making a ton of cash, they would not be raising money and they would be public by now. The market is attractive and getting better. John DoyleManaging Director http://www.peachtreecapitaladvisors.c...

  • Manthatufear

    John I agree with you! All these investments are the idea of potential i.e. what Facebook, Twitter, Groupon etc. can potentially become. There are no strong hard numbers to support that these investments will pan out to be as profitable as investors are hoping…yet!

  • Haggie

    Could someone name any “bubble” that actually didn't happen?Every bubble, in my lifetime, that some “expert” who is financially tied to the bubble but vehemently denies its existence has actually happened…

  • paavan

    Of course the man at the top of the bubble will claim there is no such thing!

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    [...] 2/17/2011: “Y Combinator founder: There is no tech bubble” - VentureBeat [...]

  • http://venturebeat.com/2011/09/28/andreessen-no-bubble-boxworks/ Investing titan Marc Andreessen says there’s no bubble because “stuff just works” | VentureBeat

    [...] Earlier in February, Graham, the leader of a well-regarded startup incubator said the Valley wasn’… because the companies were much better quality than they were in the late 2000s. He made those comments on news aggregator Hacker News, a part of Y Combinator. Twitter and Digg investor Mike Maples has said that the emergence of copycat companies has also contributed to the growth of a bubble. [...]

  • http://onlinemagazine.pcriot.com/?p=44871 OnlineMagazine » Blog Archive » Investing titan Marc Andreessen says there’s no bubble because “stuff just works”

    [...] Earlier in February, Graham, the leader of a well-regarded startup incubator said the Valley wasn’… because the companies were much better quality than they were in the late 2000s. He made those comments on news aggregator Hacker News, a part of Y Combinator. Twitter and Digg investor Mike Maples has said that the emergence of copycat companies has also contributed to the growth of a bubble. [...]

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