We asked you to weigh in on Connie Loizos’s post about Mark Cuban’s take on the mania over certain Internet companies, such as Facebook, Twitter and Zynga. Cuban says we’re really not in a new Internet bubble. Instead, we’re seeing “the 2011 version of a private equity chain letter.” The early investors in these companies will do just fine, but the last VC who comes in at an insane valuation is going to be left holding the bag, Cuban says.
So far, more than 1,200 of you have taken our survey. (It’s still open. If you want to get in on the action, scroll down to the bottom of this post.)
You overwhelmingly answered yes to Question 1: “Mark Cuban says the current mania over certain Internet companies (such as Twitter and Facebook) isn’t a bubble, but more like “a private equity chain letter.” And some sad sack is going to end up holding the bag. Is he spot on or off the mark?” At last count, 1,175 of you (or 94.2%) said Cuban was spot on. Just 73 (or less than 6%) said he was off base.
As to the question of who will be left holding the bag, the vast majority (900, or 74.3%) said it would be retail investors. Just 311 of you (or just under 26%) said the VCs would end up holding the bag.
More than 60 of you posted additional comments, many along the lines of: “Alas no lessons learned from the dot-com bubble.” Here’s a sampling of what you had to say:
Comments about who’s going to lose:
“It’s the VCs’ investors that will end up holding the bag. It takes a minimum of 10 years to put a VC out of business.”
“With a little luck, it’ll be the VCs that take the fall.”
“Twitter is worthless and poor retail investors are going to find out.”
“Twitter, for instance, is “valued” at 100x annual earnings. There’s no Discount Rate in the world that makes that sensible to a reasonable investor. So all that’s left are the “there will be a greater fool” investors. Look in the mirror, guys. The people who made JDSU a superstar have almost rebuilt their nest eggs. Guess it’s time for them to lose it all again.”
“It’s always the retail investors left to hold the bag — the last VC in the chain will always wriggle out using a PO.”
“Mainly LP’s will lose big time GPs with management fee and carry can’t lose.”
“Interesting mention that one of the big suckers is Andreessen Horowitz, Marc having made his first big fortune off of someone else’s invention, and now looking to do the same again, only legally. If the guys suing Zuckerberg ‘win’ a lot of money, there’ll be a lot of Andreessens (including Cuban) getting sued by the ‘little guys’ they ripped-off on their way to billions.”
“The VCs are too smart to get stuck holding the bag, and no one is out to protect retail investors from buying into the hype. Better to stand on the sidelines if you weren’t in the first couple of funding rounds.”
“The IPO crash will be about four months after Dodd Frank is implemented so there is a convenient scapegoat, showing how bad Dodd Frank is for investors.”
Comments disagreeing that Facebook, Twitter, etc. are overvalued:
“Everyone said Yahoo and others were overvalued in 2000 when we were in a ‘bubble.’ Sure, a lot of companies from that time didn’t work out, but not necessarily because of the bubble. If you had money in eBay or Amazon back then, and held on through the downturn, you wouldn’t be sorry today.”
“Funny that the assumption is necessarily that someone is going to end up holding the bag. You can’t even vote for the idea that Facebook, Zynga, LinkedIn, Groupon, Pandora, et al. are real businesses with revenues and growth.”
“A lot of people thought Google was overpriced when it came public at $80.”
“A third option is that these companies actually become viable, profit-generating, good investments.”
“Facebook isn’t going away, but you’d better find a way to generate serious revenue if you’re going to pretend to be worth $60 billion.”
Comments about Cuban being wrong:
“Matt Maroon has it spot on. Cuban is wrong. When there are multiple rounds of VC, it is the COMPANY that gets the money, NOT the previous VC investors. Everything else mentioned is irrelevant.”
“No VC deal involves taking out other earlier investors; his comments do not make sense re VCs; if any money was taken off the table in these transactions, it was to cash out company employees.”
“His logic is flawed he assumes late stage is buying out early stage.”
“Cuban’s opinions are ALWAYS self-serving and bear little relation to reality.”
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