Peter Kafka

Recent Posts by Peter Kafka

Don’t Call It a "Bubble," Says Fred Wilson. But Things Are…”Troubling."

Fred Wilson is one of the most high-profile investors in tech. And his blog is certainly one of the best-read. So if the Union Square Ventures partner says we’re in a bubble, that would be a very big deal.

But Wilson doesn’t use the word “bubble” anywhere in the post he wrote this morning. Instead he refers to “storm clouds” in two markets: One for tech start-up financing, and one for tech workers themselves (courtesy Google, Facebook, et al).

These are ominous clouds! A few excerpts from his post:

  • “The competition for “hot” deals is making people crazy and I am seeing many more unnatural acts from investors happening.”
  • “We are also seeing large deals ($5mm to $15mm) getting done in a few days with little or no due diligence. Investors are showing up at the first meeting with term sheets. I have never seen phases like this end nicely.”
  • “I think both of these situations are unsustainable. And anything that is unsustainable will eventually stop happening.”

On Twitter, I summarized Wilson’s post this way: “@fredwilson says yes, it’s bubbletime.” And then I heard immediately from Betaworks’ Andrew Weissman and O’Reilly AlphaTech Ventures’ Bryce Roberts, both of whom have invested with Wilson in the past: They don’t think Wilson means there’s a bubble.

And neither does Wilson himself:

Why does it matter if we describe something as a “bubble” instead of “troubling”? I’m not sure that it does for the layperson. But I think it’s very meaningful for professional investors like Wilson. For one thing, if they think it’s a bubble, then their own investors might wonder why they’re continuing to make bets.

It’s also worth noting that even if we are in a bubble, it’s nothing like the housing bubble, or the 2000-era Web bubble (when Wilson was making VC investments via Flatiron Partners): The scale isn’t remotely similar, and the general public has very little stake in the outcome.

But it’s Wilson’s post, so he gets the last word here. Here’s his response to an email I sent asking him for additional input (I’ve added a punctuation mark or two):

I don’t think it’s helpful to use the bubble framework. There is a supply demand imbalance in hot deals and sw engineers, particularly in Silicon Valley. That is driving up prices but also leading to some odd behavior. I just think it’s healthy to talk about it calmly and rationally.

[Image credit: Joi Ito]

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus