So Cuban started (what became) Broadcast.com, ramped it up to $13.5 Million revenue per quarter [1], and sold it to Yahoo for $5.7 billion (in stock, but we'll disregard that fact for now). On track to do $54 million in a year, means he sold for 1,000x one year's revenue.
15 years later, Facebook brings in $3.2 Billion in revenue and has a market cap of ~$41 Billion, or about 12.8 times one year's revenue. [2]
And we won't mention Google, despite the fact that they're the most obvious tech company to compare the likes of AOL to, because they make more money than God, and it would harm the argument. Uber, Twitter, etc. may be overvalued, but they bring in cold hard cash, and they're barely getting started.
Things are frothy right now, for sure; there are some really high rounds being raised that are justified by portfolio theory, and some no-product seed rounds at really high valuations. There will be some major catastrophes, and people will lose a lot of money.
But I have no idea how Cuban could possibly make the argument that it's worse than 1999.
He isn't arguing firms are overvalued by a greater degree now relative to 1999. He's arguing that investments in private firms, which are far more popular now, are worse for small players due to their lack of liquidity.
If things start going south in a private investment, a share holder may not be able to exit even at a large loss.
If things start going south in a public investment, a shareholder may not be able to exit that, either. The truth is, it's all about liquidity, and liquidity dries-up on the way down.
Sure they can except in the most extreme corner cases. You an contrive situations in which it's difficult to sell stock on the NYSE or NASDAQ, but it's basically always quick and easy (e.g., you can move $100K of FB stock in seconds using your phone during just about any market hour and often even outside of them). That is definitely not true of private markets, at least at the moment.
Next time the market is in melt-down mode -- like it was just beginning to be last October -- watch how wide the spread gets. Sure, if you're somebody willing to take any price in a fire sale you can get out of anything.
I'd consider that a corner case. And even then, it is possible to get something out. With private investments, that just may not be true or involves high ad hoc transaction costs.
My original reply was intended to point out that what was the top article comment at the time completely missed the point. Cuban is arguing that severe liquidity restraints are bad, especially so for small time investors. For scenarios like you describe, public exchanges aren't perfect either, but they are very, very good at facilitating near-instantaneous liquidity and they strictly dominate the current set of private crowd funding vehicles.
He's assuming everything will go to zero. So while his post is about liquidity, he throws in "oh by the way all of tech will obviously come crashing down." Except for the tech companies he invested in, of course.
There were a lot of lottery winners who lost everything in the first tech bubble. Mark sold his company for billions then locked in his fortune using put and call options. Pretty smart if you ask me. Though, I do not agree with this article
Very few if any won the lottery like he did. Yahoo never made money on broadcast.com and eventually shut it down after buying for many billions of dollars.
The thing I'm frankly most worried about is interest rates, which will be the thing to reset the current angel situation. If interest rates rise, it's likely some of the more levered investors will have a safer place to put their cash than LPs. Seems like it'd be an inverted stage crisis where people either can't raise late stage rounds and maybe that stops up the front?
Cuban actually admits that his company was part of the 1999 bubble.
"In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story. In the tech bubble it was Broadcast.com..."
>So Cuban started (what became) Broadcast.com, ramped it up to $13.5 Million revenue per quarter [1], and sold it to Yahoo for $5.7 billion (in stock, but we'll disregard that fact for now). On track to do $54 million in a year, means he sold for 1,000x one year's revenue.
And then participates in a television show where 'shark investors' ridicule others for their 'insanely high valuations', which are sometimes as small as 20x one year's revenue.
I love how he's only who he is today because he was lucky and picked the right time to sell his business. Same business would not be worth as much today.
To be more specific, Broadcast.com would have likely went bankrupt very rapidly during the period of the dotcom bust (it would have been sold off for a small fraction of the Yahoo acquisition price). Financing would have disappeared, and Broadcast.com was losing as much money annually as it was doing in revenue, that bleed would have gotten much worse as advertisers disappeared.
Yahoo ended up shuttering the business not long after the purchase. They couldn't make it work.
15 years later, Facebook brings in $3.2 Billion in revenue and has a market cap of ~$41 Billion, or about 12.8 times one year's revenue. [2]
And we won't mention Google, despite the fact that they're the most obvious tech company to compare the likes of AOL to, because they make more money than God, and it would harm the argument. Uber, Twitter, etc. may be overvalued, but they bring in cold hard cash, and they're barely getting started.
Things are frothy right now, for sure; there are some really high rounds being raised that are justified by portfolio theory, and some no-product seed rounds at really high valuations. There will be some major catastrophes, and people will lose a lot of money.
But I have no idea how Cuban could possibly make the argument that it's worse than 1999.
[1] http://en.wikipedia.org/wiki/Mark_Cuban#Business_career [2] http://ycharts.com/companies/FB/market_cap