Peter Kafka

Recent Posts by Peter Kafka

Marc Andreessen Says There’s No Bubble. But He’s Happy if You Think There Is.

Marc Andreessen doesn’t buy the bubble talk. Which is fortunate, since he’s in the business of investing in the kind of companies that tend to generate some of the bubble talk.

But even if you think Andreessen’s just talking his book, it’s certainly worth listening to him talk. Here’s the case he laid out at D9 Wednesday night:

It can’t be a bubble, because everyone thinks it’s a bubble. “A key characteristic of a bubble is that no one thinks its a bubble,” he says, noting that in 1999, people were euphoric. “If everybody’s upset, it’s a good sign…I hope there are lots of bubble stories.”

It can’t be a bubble because the stock market isn’t acting like it’s a bubble. Here Andreessen rattles off a list of price-to-earnings ratios for big successful tech companies: Apple is trading at a p/e of 12, Microsoft at 7, Cisco at 6, etc. Investors are disdainful of technology, he says, because “the public market is tremendously scarred by what happened 10 years ago.”

OK, but what about LinkedIn? It has a stratospheric p/e, after all.

Andreessen, who happens to be a LinkedIn angel investor, has a series of answers for this one: It just went public. It has a thin float. Equity in the public market is starved for growth, and has nowhere else to go. It’s a genuinely exciting company. And even if you wanted to short it, you couldn’t because you can’t find shares to borrow, etc.

And even if LNKD is tremendously overvalued, he says, that would mean that “for the first time in equity history, we have a bubble that’s affecting one stock.”

So what about the secondary markets? By some standards, companies like Facebook, Zynga, etc., are trading at very high multiples, right?

Hard to say, he says, because it’s hard to figure out what’s really going on in the secondary markets (where Andreessen himself has been a buyer).

There’s very little supply, and actually not even that much demand–because most institutions can’t invest in these kind of companies. Recall that just a few weeks ago, the secondary markets valued LinkedIn at much, much lower valuations, Andreessen notes.

The nice thing is, we’ll get to test this one out sooner than later, as a raft of big private companies head toward IPOs of their own. Some of them Andreessen happens to know well. Like Groupon, which Kara Swisher says will go public soon.

“No comment,” Andreessen says, then tries an Andrew Mason death stare. It’s not nearly as effective.

Note: Andreessen speaks very, very quickly, which means you’ll want to hear him for yourself in the video below. There’s also a less frenzied version of this argument, via his business partner Ben Horowitz.


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Start-ups should be based on radical ideas. There should be a high failure rate for start-ups, because if there isn’t, their ideas aren’t bold enough.

— Andreessen Horowitz co-founder Marc Andreessen