Y Combinator's Paul Graham: There's no bubble

Faith Merino · February 18, 2011 · Short URL: https://vator.tv/n/173b

But can we please put things into perspective?

The "B" word keeps resurfacing like a menacing gopher that we can't chase out of our golf course. With Facebook hovering around a valuation of $50 billion and climbing, and Twitter being valued at more than 200 times its annual revenue, the facts seem to be glaring us in the face. Last week, Eric Schmidt finally called it in an interview with Swiss magazine Bilanz when he stated:  "There are clear signs of a bubble."

But Y Combinator founder Paul Graham took to Hacker News on Thursday to refute the claims that we're headed into another tech bubble.

"I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a 'new economy' driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant," wrote Graham, adding: "What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg."

So essentially, while Schmidt and others are warning that the valuations of companies like Facebook and Twitter are reaching Bubble-like proportions, Graham's argument is that the companies are truly just THAT good. 

This is where I'm going to pull out my "yeah, but still" argument (that part of the conversation where someone makes a really good point that you can't really shoot down, other than to say "yeah, but still...."). $10 billion? For Twitter? When only 12% of Internet users actually use Twitter?

To put things into perspective, on Thursday, President Barack Obama met with major Silicon Valley business leaders to discuss his proposed 2012 budget, which would pour more dollars into tech research and innovation. Barack Obama's plan to connect the entire country with wireless broadband is going to cost $18 billion--just $8 billion more than what Twitter is being valued at (and only $3 billion more than what Groupon was recently valued at). Extending wireless connectivity to the farthest reaches of the country is going to cost less than half of what Facebook is now worth. 

So...to Paul Graham's argument that the companies are better and investments are more focused, I say...yeah, but still....

Image source: flickr.com

Support VatorNews by Donating

Read more from our "Trends and news" series

More episodes