[abrenzel]

Is this a full-on bubble? No, it's probably nothing like the 1990's. But I still think the truth is that today's monetary situation is creating an incentive to chase yields, and it is not out of the question that this is showing up in VC valuations just as it is showing up in commodities.

The fact that these valuations seem to be stemming more from the money others have put in (or said they would be willing to put in) rather than the revenue of the company itself ought to arouse deep suspicion. Yes, I understand part of a valuation is examining the pricing signals being sent by the market, in this case VCs, for the particular company. Still, look at Twitter. Some valuations for it have come in at $10 billion when it's been admitted their yearly revenue is $150 million. If Twitter were to IPO at that valuation, that means 99% (+/- for whatever other assets they might have) of their float would be pure leverage. For many other tech start ups, the same sort of situation exists even if the magnitude is not as great.

For those down the line in the thread talking about the better development tools/programming languages/hardware in relation to this topic, let me ask: how do better development tools justify higher valuations? Certainly, I'd rather be developing a web app with Python/Django today than in ASP in 1995, and running it on today's server hardware with today's replication and load balancing strategies. There's no doubt the development cycle for many kinds of applications has been radically shortened. Yet, the revenue model for many of these internet companies is only slightly clearer than it was in 1998. That is not true of every company, only some; but it is true of enough that I think it is cause for concern.

Experimentation is a wonderful thing. It is the only way the economy advances and people's lives become better. Part of the "startup industry"'s job is to provide that experimentation, and by its very nature most will fail. The problem is when the investment community begins to pay a large speculative premium for that. Even if the resulting "bubble" is not an economy-destroying one as it was in 2000 or 2008, it can still do a great deal of harm.