Dot-com era startup founder and Dallas Mavericks owner Mark Cuban isn’t being polite about the state of tech industry investment. In his mind, we’re in the midst of a huge tech bubble. And in his words, “The bubble today comes from private investors who are investing in apps and small tech companies.”
In a post on his blog, Cuban contends the current investment climate is more dangerous than the one that led to the dot-com crash at the turn of the century.
“Back then,” the Shark Tank star writes, “The companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.”
Today, he states, “people we used to call individual or small investors, are now called angels” and new equity crowd funding mechanisms allow those with as little as $5,000 to invest.
That combination is combustible because Cuban contends, “there is ZERO liquidity for any of those investments.” He predicts dire consequences: “There is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5K into the dream only to realize they can’t get any cash back when they need money to fix their car.”
“So why is this bubble far worse than the tech bubble of 2000?” Cuban asks rhetorically. “Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.”
Cuban may be strident, but he isn’t alone in questioning today’s billion-dollar “unicorn” valuations of tech startups.
Earlier this week in San Francisco, legendary investor Chris Sacca told the Launch Festival, “I think this whole Valley has gotten way ahead of itself, and I’m excited for the crash, and for all the pretenders to clear out and for the people who are the die-hards, the builders, the people who have been hustling and selling candy in their high school cafeteria, who have been going door-to-door their whole lives, who are built for this game, I can’t wait until it’s just them again.”
But not everyone agrees. At last October’s GeekWire Summit, Zulily Chairman Mark Vadon said startups today are “much more valuable.” A panel of Seattle CEOs pointed out startups that are now receiving huge valuations have real growth. “It’s not like the late 90s or early 2000s where there wasn’t revenue,” Moz CEO Sarah Bird said.
And if there is a bubble in certain areas of tech, some contend, bring it on. Netflix CEO and DreamBox Learning board member Reed Hastings, speaking to an investment-focused education technology conference last April, said any bubble now isn’t big enough based on the “incredible tailwind” for edtech’s potential.
Cuban doesn’t seem impressed by others’ explanations. “If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then,” he writes. “it’s worse today.”