We are in a boom again

The following data come from  a CB Insights guest blog from Cue Capital, It’s a Boom, Not a Bubble. The article is dated March 31, 2015

It substantiates with numbers what I wrote in May 2014, out in my blog What looks like a doom, is a boom .

The erratic valuations disappeared

Figure 1: 2015 versus 2000 Top Nasdaq Price Earning

Yahoo with  earnings 418 times the valuation in 2000 is no longer in the top 10 list. Oracle bought Sun only to disappear both of them from list. Dell is gone. Companies that did not exist before in 2000 like Google and Facebook top the list in 2015. Apple had a fabulous renaissance. Cisco made it on the list, but bruised with PE ratio 10x lower

NASDAQ index is back to the 2000 level

Amazing: it took 15 years, but we did it and looking at the PE ratios, all is toned down. The investors are more educated, yet now seems the NASDAQ is solid.

Figure 2: NASDAQ is back to 2000 level

Amazing difference in top NASDAQ companies by market cap

Figure 3:Nasdaq  Market Cap ranking 2015 versus 2000

Big Data was a stumbling block to take decisions

In another entry on this blog:  From Big Data to Big Decisions , 

    I quoted the opinion of Larry Fink,  the CEO and Chairman of the largest asset management firm in the word, Blackrock (three and half trillions dollars under their administration)

1. The markets in America reflect a lot of fear. We are bombarded with information that we can not make sense out of it. We can't decide whether this  Big Data information  is good or is bad.
2. As a result every CEO, government decision maker handling money only invests short term.  Some CEO's buy back shares to invest the cash in government bonds at 2% interest rate. Companies sit on lots of cash, too afraid to spend it. 
3. Banks have tons of money, they sit in the vaults without making loans. The banks want to make loans, but say someone who qualified for a loan in 2007, does no longer qualify. The companies who qualify, they do not need any loans as they have tons of cash already.
4. The main inhibitor, it is worth repeating, is not Big Data itself. It is the fear of it. The top decision makers in our society, the CEOs and the Government economists, are unsure how this big data can be used.

 Define speed as "How quickly we can go from data to decisions?", said one young founder of a big data company. But this speed is only partially dependent upon technology.After all the price of a security is determined by our belief that will go up

Future traps and future hopes

I am thinking of the buyers of Hortonworks stock, who have not a clue what Hadoop is. Or the new container technology, like Docker, CoreOS. The public, and even some VCs don't understand this technology well enough.

But there is a new generation of investors who are just as innovative, if not not more innovative than the entrepreneurs they fund. Peter Thiel,, Elon Musk in general all the so called PayPal mafia entrepreneurs.

The recent invention of  incubators  made successful entrepreneurs from nice school kids The side effect is the creation of new type of successful entrepreneurs, young, arrogant, what David Brooks describes as "avatars of success" who never faced any obstacles in life and never hit their heads into a wall.

They got 3.8 grade-point averages in high school and college. They served in the cliché leadership positions on campus. They got all the perfect consultant/investment bank internships. During off-hours they distributed bed nets in Zambia and dug wells in Peru.

 When you read these résumés, you have two thoughts. First, this applicant is awesome. Second, there’s something completely flavorless here. This person has followed the cookie-cutter formula for what it means to be successful and you actually have no clue what the person is really like except for a high talent for social conformity. 

These avatars of success  are bound to fail one day, as humans inevitably do and learn what we already know

Figure 4: What incubator entrepreneurs should learn

If they don't learn this, the sameness of the new incubator companies success may trigger another bubble in the future.

The Unicorns

Quote from Cue Ball Report

 There are a record number of startup “unicorns” – VC-backed companies valued at over $1Bn – in existence, including well-known names such as Uber, AirBnb, and Dropbox.  Altogether, as of this writing, there are now 78 unicorns, and more than 20 of them reached this milestone in just the past year.

Figure 5: The Unicorns 2014 (see text above)

The #1 Unicorn is Xiaomi, who are based in China. They are an Apple me-too. This questions for how much longer Apple will maintain leadership just making phones and pads, when Xiaomi can do the same things at lower investments for highest valuations? Uber is an internet taxi service and can be displaced by a competitor anytime. Palantir is not an incubator company, and it is the most solid among the top 20 Unicorns. Yer Airbnb, Dropbox, Snapchat are incubator born.

According to a thread in Quora What's the success rate of startups that have been funded by Y Combinator? "There are anywhere between 404 and 468 startups that have been funded by Y Combinator. There are also three states for a Y Combinator funded startup: Exited, Operating and Dead"

The update daily picture is here

Figure 6: Data updated daily on this web site 

This shows an impressive 75% of the Y Combinator startups still active. However  nearly 75% of the total value of companies they have funded is accounted for in two big players (Dropbox and Airbnb)

This to me is about sieving sands from Sacramento river looking for gold

The next mind blowing success investments (like Google)  will come from non-conformists and underdogs , not from incubators.