When Facebook agreed earlier this month to buy Instagram, a mobile photo application company with zero revenue, for $1 billion, it certainly suggested a tech bubble is raging.
And many experts think just that.
“This is 1999 all over again, but this time, it’s gotten worse,” Jeffrey Pfeffer, a professor at Stanford business school, tells The New York Times. “We’re back to companies throwing around funny money. The economic values don’t add up.”
And he notes that this bubble is mushrooming as the nation struggles to recover from the worst recession and financial crisis since the 1930s.
The bubble has progressed so far that investors advise start-ups not to make money, just like Instagram hasn’t. The thinking is that if you aren’t making any money, you can value your company at whatever number you choose.
There’s even a name for this idea – “mark to mystery.” That’s a play on “mark to market,” which values an asset at precisely the amount prescribed by the market.
“Once there is no revenue, there is no science, and it all just becomes finger in the wind valuations,” investor and entrepreneur Paul Kedrosky tells The Times.
Ray Valdes of Gartner consulting firm sees plenty of evidence there’s a bubble.
That includes "two- and three-person Silicon Valley startups getting venture capital funding within days or weeks, rather than months, for stuff that is more of a feature than an actual product," he tells The Guardian of London
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