Technology bubble? 'We don't think there is,' says Marc Andreessen
Don't tell Marc Andreessen there's a bubble in Silicon Valley.
"We don't think there is," Andreessen said during an interview with Walt Mossberg and Kara Swisher at the All Things Digital Conference on Wednesday night.
Andreessen, 39, who helped invent the Netscape browser and now runs venture capital firm Andreessen Horowitz with his partner Ben Horowitz, reasons that bubbles tend to be a psychological phenomenon. He says all the angst about a bubble is reassuring and that he only gets frightened when other people get euphoric.
"If a very large number of people think there's a bubble, that makes us think there isn't a bubble because a key characteristic of a bubble is that everyone thinks there is a bubble," he said.
Andreessen also analyzed the price-to-equity ratios of large technology companies, including Apple, Google, Cisco and Microsoft, which are trading at single-digit ratios, which he said suggests that the public markets are still scarred from the technology collapse a decade ago and are significantly undervaluing them.
"What that tells me is that the public market hates technology," he said.
So what then of LinkedIn's hot initial public offering?
Andreessen, who's an angel investor in LinkedIn and a huge proponent of its business, had a number of explanations: It had a thin float. Investors are hungry for a growth story. LinkedIn founder and Chairman Reid Hoffman is the best innovator in the industry. And even if you wanted to short the stock, you couldn't because you can't find shares to borrow.
But there are quite a few high-profile Internet companies –- namely Zynga –- that are lining up to make their own stock market debut. Their valuations have soared in private funding rounds and in trading on secondary markets. Aren't those companies trading at unreasonable multiples?
Andreessen, who has raised $1.3 billion for his venture capital firm to invest in promising young start-ups, says it's hard to draw any conclusions about what's going on in the secondary markets where demand greatly outweighs supply and many institutions as well as individuals can't invest. Besides, he said, LinkedIn fetched four times its price on the secondary markets when it went public.
He saved his favorite bubble argument for last: "Take all of the later-stage companies, all of their theoretical valuations, add them all up and collectively the whole universe is still worth less than Google."
Then he made a statement that seemed, if not bubbly, a bit fizzy. Chalking up the failure of start-ups to bad timing, he said: "Almost every dot-com idea from 1999 that failed will succeed."
-- Jessica Guynn
Photos: Marc Andreessen Photo credit: Asa Mathat / All Things D