A Bubble, or Just Frothiness?

This past Friday, I made the trek to Windy City to attend the TechVision2011 conference.  Put on by the University of Chicago's Booth School of Business, the conference featured panels on (among other topics) mobile devices, venture capital, and electronic content, and keynotes from tech success stories, such as Dan Rosenweig, CEO of Chegg.com.  The topic that created the most buzz, though, was the timely panel on the "Bubble Myth."

The question of whether or not we're seeing the start of another tech bubble has been troubling me lately.  Comb TechCrunch on any weekday and you're liable to come across several "We got funded!" announcements.  (On a side note, a member of one of the panels revealed that his startup had just secured funding, but told us, "You better not be tweeting this, cause I want my TechCrunch article.")  More concerning is the prevalence of media attention brought to companies garnering ridiculously high valuations.  Is Facebook really a $70 billion company considering it commands a mere $2 billion in revenues?  A 20x EBITDA multiple is above average in software, but this is 35x revenues.  Of course, Goldman Sachs and other Facebook investors forecasted the present value of the future cash flows based on growth in user base and aggressive growth in monetization of that base.  But I'm not sure they did.  One VC on the venture capital panel logged the opinion that many investors are pushing up valuations because they know later investors will push up their valuations, ultimately culminating in an explosive IPO.  Undoubtedly, if Facebook IPO'ed next year, Goldman would stand to make a solid return.  That sounds very much dotcom-bubble-ish.

But when the moderator of the Bubble Myth panel posed the bubble question, each panelist gave a definitive "No."  Same with the venture capital panel.  However, when they actually discussed it further, they described quite a bit of frothiness going on.

• High valuations: Yes.  But this time around they are based on something, like existing revenues.  Or at least a product launched.  Or at least a prototype.  But no business plan, that's a waste of my time.  Just send me a PowerPoint deck.
• Bubble-ish activity: Yes, but not here in Chicago.  Those crazy people in Silicon Valley aren't basing their investments on anything, but we are here.  Groupon has real potential.

In other words, there is a principal-agent problem here: Of course VCs and startup founders are going to say that there is no bubble, because their quality of life is greatly increased in the midst of a bubble and is decreased when a bubble a burst.  Admission of a bubble means that it may be burst sooner.

So, the jury is still out on the presence of a new tech bubble, and the head juror is time.  I trust that it will tell us the result in a few years.