Tech bubble warnings

Tech bubble warnings

The tech bubble continues with Facebook's valuation now hitting $85 billion, and it hasn't even floated yet. A new app from Color Labs has just raised $41 million, and it hasn't yet hit the market.

All this brings back memories of the Dot Com Era? Remember all those start-ups that promised to make people rich? Pets.com, FreeInternet.com, Boo.com, Kozmo.com, Zap.com … the list continues. Those companies were hyped up beyond their true value in the late 1990s and early 2000s. They vaporized. The dot-com bust saw thousands of people lose millions in investments.

All the signs say we are entering a new bubble. Alan Patrick, co-founder of technology consultancy Broadsight details signs of a bubble:
1. The arrival of a "New Thing" that cannot be valued in the old way. Dumb-money companies start paying over the odds for New Thing acquisitions.
2. Smart people identify the start of a bubble; New Thing apostles make ever more glowing claims.
3. Start-ups with founders deemed to have ''pedigree'' get funded at eye-watering valuations for next to no reason.
4. There is a flurry of new investment funds catering for start-ups.
5. Companies start getting funded purely on the basis of their PowerPoint presentations.
6. MBAs leave banks to start up firms.
7. The ''big flotation'' happens.
8. Banks make a market in the New Thing, investing pension money.
9. Taxi drivers become experts.
10. A New Thing darling buys an old-world company for stupid money.

There are signs this is starting to happen now.

According to Bloomberg, Warren Buffett has warned that many social networking sites are overpriced. People are going to lose their shirts.


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