> The one good side effect is that private investors are taking all of the risk. If there is an adjustment in valuations across the industry, it should not effect the public markets the way it did in 2000.
I'm not so confident about this. One of the reasons the 2000 correction was so dramatic was how interconnected tech revenues had become. Startup A had revenue because startups B and C were customers. When B went under, A started to have trouble. Then A goes under, so C loses their customers who were being paid by A, and so on. Revenues were basically a shell game funded by VCs.
This pattern looks like it's repeating itself. Look at public companies like Facebook and Twitter: huge portions of their ad revenues come from app install ads. It's safe to assume that a lot of those ad buys wouldn't be happening without VC funding. How about IaaS/PaaS providers? Same story. There will still be customers for many of these products if the bubble pops, but how well can these companies handle a rapid reduction in demand? And then there are ripple effects. How will commercial REITs fare? How will consumer spending be effected when people currently earning inflated salaries paid for by VC money suddenly can't find a job?
At this point it's all one big hypothetical, but I would hesitate to assume that a correction will be limited to the private market. The public market has plenty of exposure to the private bubble by proxy.
A lot of app install ads are from companies with solid revenue streams that are not startups. A lot are also for mobile games monetizing (oftentimes quite profitably) off IAP.
I feel like there is a common claim floating around that a lot of the big tech companies in the advertising industry (Google, FB, Twitter, etc.) are going to take a huge hit if something causes funding to dry up for startups.
I have yet to see anything material indicating that a notable portion of their ad revenue is driven by such companies. Are these companies spending with them? Sure. But in terms of absolute dollars and total % of revenue, my assumption would be it is a drop in the bucket compared to large established brands like CPG companies, clothing companies, auto companies, etc.
Let's say a company gets $10M in funding. It's hard to see how it can spend more than $100K/year on IaaS. On the other hand, there are plenty of blue-chip companies spending $millions on IaaS. (i.e. Try to do drug research without it.)
And even if all VC money went away, for every VC funded company, there are 100 startups using 1/100th of IaaS.
I'm not so confident about this. One of the reasons the 2000 correction was so dramatic was how interconnected tech revenues had become. Startup A had revenue because startups B and C were customers. When B went under, A started to have trouble. Then A goes under, so C loses their customers who were being paid by A, and so on. Revenues were basically a shell game funded by VCs.
This pattern looks like it's repeating itself. Look at public companies like Facebook and Twitter: huge portions of their ad revenues come from app install ads. It's safe to assume that a lot of those ad buys wouldn't be happening without VC funding. How about IaaS/PaaS providers? Same story. There will still be customers for many of these products if the bubble pops, but how well can these companies handle a rapid reduction in demand? And then there are ripple effects. How will commercial REITs fare? How will consumer spending be effected when people currently earning inflated salaries paid for by VC money suddenly can't find a job?
At this point it's all one big hypothetical, but I would hesitate to assume that a correction will be limited to the private market. The public market has plenty of exposure to the private bubble by proxy.