Bubbles Are Made To Be Popped

By Michael Hiltzik
Los Angeles Times.

Bubbles are made to be popped, and evidence is mounting that Silicon Valley’s most recent bubbles, among them private investments in biotech and initial public offerings in several sectors, are leaking air.

The investment landscape in technology is so varied that it’s hard to come up with a single metric. But even venture investors are pointing to some worrisome signals. Among them are developments that point to investors becoming a lot more choosy about how much they put into companies that are still more about aspirational rhetoric than about bringing out a marketable product.

Exhibit A on this score may be Theranos, the Palo Alto biotech company whose claims for its blood-testing technology were exploded by articles last week in the Wall Street Journal. Theranos may yet make good on its claims to transform healthcare, but the possibility that it has been concealing problems behind the scrim of private-company secrecy could make investors more skittish or their due diligence more, well, diligent. Either development will lower values across the sector.

“It is easier to conceal weaknesses, present an aura of invincibility and confound investors as a private company that can escape by making fewer disclosures than as a publicly traded one,” wrote Michael Moritz, chairman of the venture firm Sequoia Capital, in the Financial Times last week.

Among the other top VCs sounding caution, or even alarm, is Bill Gurley, the veteran general partner of Benchmark Capital. At a conference last month he reckoned that the current venture cycle may have passed its peak. “I’m of the belief there’s an 80% chance we’ve tipped,” he said, projecting pain ahead: “There’s no soft landings. There’s boom-bust periods — ’01 and ’09 were tragic and really hard to execute through….We’ve moved from everything’s rosy and we’re starting to see cracks.”

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