[spyspy]

The problem with this type of reasoning is that there are always analysts predicting a bear market. Articles arguing as such come out every day. So it's easy to find an article from the late 90s that said a crash is coming and feel vindicated that that person was right among so many fools. Perhaps that analyst was brilliant and his argument was flawlessly researched, but anyone can build a bubble story over rising P/E ratios. I can predict a bubble burst right now and I'll be correct at some point in the future. Saying "we're in a bubble" is pointless without an accurate prediction of the turning point.

[bcantrill]

You're misunderstanding the essential point of @hvs's comment: it's not that some people predicted the bust (though that was certainly true), it's that the articles that indicated a bust was coming helped instill a collective sense the boom couldn't last forever. This is very important because it preconditions everyone for the bust -- and when the bust comes, it accelerates stunningly quickly. Having lived through two of these (the dot-com bust and the housing bust) that is my overwhelming conclusion: that the boom goes on much longer than you could think possible, but once it turns into bust, it turns with a vengeance that you cannot imagine. And I'm not alone in this conclusion; Marc Andreessen (famously) phrased this as startups that will "vaporize"[1] -- because we are the generation that saw it first hand.

Until then (and as was said to me at the height of the dot-com bubble by someone who was then three times my age[2]): enjoy the party -- but dance close to the door!

[1] https://twitter.com/pmarca/status/515216965183754242

[2] https://twitter.com/bcantrill/status/572952707788505088

[ChuckMcM]

This is exactly right, bubbles are a sort of "mass hysteria" where everyone in the herd is trying to get the most for themselves. Generally to be successful you need otherwise rational people to put aside reason and to invest in the belief that things are going up. And they do, and you get these things. And when that belief is dispelled, they go elsewhere.

What isn't well spelled out is how people step out of the bubble without losing their shirts. And that is something that is going to make this one interesting. A privately held company is illiquid. So you can't really get out, you just have to sit there and watch your value deflate.

But as Sam pointed out, a lot of these investments are more like debt than equity, they have their liquidation preferences built in, to the really interesting thing will be to see if someone comes up with a creative way to switch all the people and IP from one company to a different company without triggering a "sale".

Let's imagine that DropBox creates a wholly owned subsidiary "DroppedBox" and of course gives it a non-exclusive right to use all of DropBox's IP in perpetuity for no fee (its a subsidiary right?) and then people start transferring into that new organization to work on projects there. And then after nearly everyone is working there, it has its own equipment, staff, etc. DropBox divests itself of its subsidiary and leases back access to the servers and services to support its legacy clients. And then DropBox goes chapter 7, but DroppedBox lives on with all the customers and technology and people of the original and none of the onerous liquidation clauses that made it impossible for them to so public or move freely in the financial markets.

When the bubble has started deflating rapidly, that is the kind of behavior you can expect. Smart people skirting the edge of prudence to avoid being the ones who take the loss.

[brandnewlow]

You basically just described what Tribune Company did over the last few years. 8 years ago they owned the Chicago Cubs, a bunch of profitable TV stations, and a bunch of newspapers that were in big trouble.

They sold the Cubs and created two new companies, Tribune Media and Tribune Publishing. Tribune Media got all the TV stations and holdings in internet companies. Tribune Publishing consists of all the newspapers.

The best part is that Tribune Media kept Tribune Tower in Chicago, home of the newspaper, and makes Tribune Publishing lease it from them.

[jacquesm]

I'm pretty sure the chapter 7 won't fly because of illegitimate removal of resources from the company knowing you're headed for chapter 7.

[angersock]

Eh? What're you talking about?

Months ago, we started a re-org to streamline our management and to help focus on our core competencies. We wanted to put more wood behind fewer arrows, and so divested ourselves of our legacy customers and technology so we could focus on our growth strengths.

Now, today, surely, the growth numbers haven't been there, but we wish all the best to our former coworkers and business assets at DroppedBox. ;)

[jacquesm]

As long as you still own DroppedBox, no problem. But if you divest DroppedBox you'd better hope there isn't any dispute once that chapter 7 hits about the price you made for it and/or any ties of investors and or principals from 'DropBox' with those of 'DroppedBox'.

Really, bankruptcy fraud is nothing to joke about, it is a very common trick to try to remove assets from a company that is on the skids but it usually does not end well.

If you divest the whole then that's perfectly possible but you're going to be under a microscope if you declare bankruptcy a very short time later.

See also 'clawback'.

[ChuckMcM]

I completely agree with you that using bankruptcy to defraud your investors, but as @angersock points out quite humourously, there are people who make their money just on the inside of "perfectly legal". Look at some of the more creative use of the bankruptcy code at Onlive.

And since there are millions, perhaps billions of dollars worth of company at play here, the top people in this game get involved. And that is what makes it interesting. Sadly much of it won't happen in public because they are private companies.