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.