Part 1 didn't quite make it. Eyeballing it I think it's around $150B, which I think still substantially backs his point, but it loses him the bet.
Part 2 was an easy win from Stripe alone.
I scanned the YC '15 Winter list and I don't think I recognize any of them. Someone could track it better via Crunchbase, but I rather doubt that he bet correctly there either.
Original title lacked a date -- and comment pointing out the omission gets downvoted. Such downvotes are destructive to the quality of information on HN. @dang?
I dont think he won the first bet did he? Airbnb, Palantir, Dropbox, Uber, Spacex, and Pinterest together are less than 200 bn and falling. All still pretty good companies (not you Uber), doing interesting things though.
bet 2 - I have not done the calculation, but just stripe puts it way beyond the 27 bn figgure.
bet 3 - plenty of good companies in that batch. Razorpay was valued at half a billion dollars in last round. Overall seems like he was right. https://www.ycdb.co/batch/w15
To me, the outcome is just another example of the power of diversification and that we really don’t know anything about which stocks or companies are best. Stripe alone made Bet 2 worth it.
I'm inclined to read it as early opportunities having the highest average growth potential. Big companies are more likely to be already around their actual ceiling.
It checks out if you move the much larger valuations in bet 2 to bet 1 as he really underestimated the companies in bet 2. Things are a bit random, so I'd say he arguably won the bet in spirit even though he didn't do it according to his own exact rules.
Sam Altman's bet isn't interesting in itself, as it looks today the market was significantly undervalued in 2015. Even Sam Altman's pretty aggressive estimations undervalued it, he just guessed wrong on which players would become big. So it definitely wasn't a bubble.
Whatever is to come with e.g. the decreased interest in the public markets for loss-making companies with no apparent path to profitability, the last 10 years have apparently not been a bubble for any reasonable definition of the term.
Definitely. If we get to wiggle things in retrospect, then we're not talking about the bet itself, but the set of all bets that 5 years later somebody on HN would see as plausible wiggling of the terms to match current conditions. That's surely a lot of bets, among which we'd expect to find several winners.
Bet 2, 3 are (more or less) bets that VC will continue to overvalue companies in the presence of cheap credit. Bet 1 is what the rest of the market thinks. Altman is a decent VC, so no surprise he'd "win" 2 & 3.
He starts out: "The massive experiment in using capital as a moat to build startups into sustainable businesses has now played out and we can call it a failure for the most part."
That slice of startup-land is always what felt most bubbly to me, WeWork being the biggest example, where even SoftBank admits losses of something like $9 billion. In contrast, Bubble 1.0's biggest loser was WebVan, at $1.2 billion.
(And as a side note to some of the discussion: that there are successes this time around doesn't prove it's not a bubble. E.g., Amazon and Google made it through, but it was still a bubble back then.)
> The massive experiment in using capital as a moat to build startups into sustainable businesses has now played out and we can call it a failure for the most part.
The issue is that the value of money has been decreasing each year for the last decade. I don't remember anyone predicting that this was going to happen as far back as 2010, although it was already obvious that it was happening by 2013 or so.
That's why you'd be hard pressed to name a single VC-funded tech startup that was founded within the last five years, because these days VCs are just funding small businesses and not startups.
No macro collapse, and the first proposition didn't work out: Uber: 50B, Palantir < 40B, Airbnb < 40B, Dropbox < 10B, Pinterest ~10B, SpaceX < 40B. So total 160-180B market cap. Close, but not quite.
Yeah, a better bet would be about those companies actually delivering profits and "growing into their vaulations", as people politely put it. None of those companies have earned a single dollar for shareholders. Not a single dollar.
I said "companies delivering profits", not "people making money trading the stock". I'm sure speculation can be profitable on such volatile securities, after all volatility is everything for traders. But there's nothing here (so far) for a fundamentals based long term investor to write home about. Zero.
I suppose, yes, and this is a little scary - the world being in such a state that you can wait 10 years for a company to make profits and it is still considered OK. Cheapening money.
But also how much longer can we wait? Google, Apple, Microsoft and Facebook were all turning profit before the IPO! Find the old S-1s if you don't believe me. And back in those days IPOs happened much much earlier.
Amazon made very controlled losses, and it was clear the core business was good and they were investing in new ideas. Sort of like alphabet except much bigger.
Correct me if I'm wrong, but Amazon was strongly cash flow positive as of 2002. Moreover, their operations were throwing off cash the year they went public (1997).
Everyone should be considering this a bit more because it says something about the irrationality of the current market. Large VC funds were investing under the thesis that some of the current crop of (now) less than impressive unicorns could follow the Amazon model: invest in growth at the expense of net income. These unicorns haven't simply failed to produce positive net income by intentionally following the Amazon model, rather they've simply burned through mountains of cash following less than impressive business models. They never followed the Amazon model to begin with.
Regardless of the fact that he missed by a bit, this type of writing is way more valuable than the standard NYT/Bloomberg "OMG IS IT A BUBBLE???" articles?
His bet was a parlay so it lost, but not by a lot. Had he been able to include Snapchat it probably would have done worse.
I think what we’ve seen in the last five years is that there’s some bubble-like irrationally exuberance but overall it’s far from 2000 all over again. Companies have high valuations but this time also often have financials and growth prospects to go with them.
Datapoint for reference: if you invested in an SP500 fund during the same time you would have roughly doubled (around 180%) your money (an annualized return of 11%).
Investing into startups and unicorns should provide significant yield over diversified and less risky investment. Getting the same result from taking more risk is not a good investment.
from the end of March 30, 2015
+56% SP500 Price index
+70% SP500 Total return index
+83% Nasdaq price index
Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX doubling their valuations would give only +3.2% annualized return over Nasdaq. I don't see the risk/reward ratio of a good investment if the price just doubles in that period.
I'm sorry if you took offense at any part of my comment, and I've tried to streamline it a little bit. But I think that some things should not be left unsaid - Trump has been called "the worst president in history" for all sorts of reasons, many and perhaps most of which are just about partisan bias rather than substance. Focusing on some of the actual policies he's taken credit for, and their real-world effects is probably more helpful.
The prop 1 companies underperformed Altman's expectations in a way that the market as a whole, and the prop 2 and prop 3 companies, did not. Explaining that via recourse to a trade war is difficult.
I'm actually surprised that he didn't win this bet since it wasn't really based on non-bubble metrics in the first place. A more interesting bet to me would have have involved profitability, P/E ratio, or some other long-term indicator that current high-rolling unicorns are actually sustainable businesses. I think WeWork has demonstrated pretty clearly that billions of dollars of VC money can prop up unsustainable companies for more than 5 years (i.e. the market can remain irrational longer than the term of this bet).
>Of course, there could be a macro collapse in 2018 or 2019, which wouldn’t have time to recover by 2020.
Which hasn't happened...
There was another thread about bubble and calling me out. Just to point out, If you bought S&P Index in 2015 you would now have roughly 200% return.
But this is in the context of tech. We forget Apple, Microsoft, Google are not just doing fine, they are doing great. And not just in US, TSMC and Samsung representing SemiConductor industry are all doing great, thanks to those ridiculous profits from NAND and DRAM; Samsung is reinvesting everything into making DRAM NAND and Foundry more competitive. Which will hopefully fence off those State sponsored Chinese Competition.
In terms of Startup, While Sam might have loss on first proposition ( I think he won the other 2 ), but they are operating just fine with similar valuation if not more, just not meeting the 200B target. Unlike other Startup that cashes in from IPO and then devalued into nothing.
Will we see a correction? Very likely. Are we in a bubble? No, at least not yet. ( Unless you like to redefine any correction as bubble burst )
I agree with everything you said except for this. Not because I am definitively saying we are in a bubble, but just pointing out it's impossible to know if we are. Very few people saw the last financial collapse coming.
The last financial collapse had many companies claiming paper valuations of assets. Companies like AAPL/MS/GOOG/FB have significant net income with significant moats around their products that still have plenty of room to grow as they all move to subscription income.
It's always easy to come up with justifications for why "this time it's different" and people will be doing that even after the stock prices are already declining.
That is a simple chart of recent 30 Yrs S&P 500 P/E.
> Very few people saw the last financial collapse coming
While media points the last financial collapse blame to CDOs, the fundamentals of it was housing prices. May be it is new to many Americans, but for those who have lived and seen through Japan, South Korea, Hong Kong housing prices collapses in the 90s, it was rather obvious. I remember the moment when I mention it in 2005 and 2006, but no one believe market would collapse, the idea of housing prices would fall was literally unheard of.
Now there are concerns of Cooperate Debt reaches new height, which is often the argument of bubble. The trouble is you cant look at cooperate debt alone and judge it. Amazon is 25B in debt, but they have 45B in cash. Apple are 100B in debt, but also ~250B cash.
Amazon were issuing at 10 years and yields about 3.2%, for reference US 30 Yr treasuries has been floating at around 2.4 The vast majority of companies are swimming in cash. ( There is less of it now because of buy backs, which is what pushes those stock prices up )
So while the market, and general economy may not be healthy, I argued it isn't in a bubble either.
> So while the market, and general economy may not be healthy, I argued it isn't in a bubble either.
You're completely missing the point. You can make arguments either way. Hindsight is 20/20. You're making an educated guess based on data which is informative, but it's theoretically impossible to predict a Black Swan event. And even without a Black Swan event, your analysis could be wrong. It's not like all analysts agree on much (if anything) - so how do you decide who's right when nobody has a perfect track record? You're making the best guess you can and I respect your analysis, but I don't assume it's correct.
Absolutely. I am suggesting to those who consistently points to doom's day needs better explanation rather than just debt alone.
Edit: Actually it was my understanding that all bubbles, by definition must have some form or irregularities or speculation. After all that is what bubbles means, turns out when I was going to quote wiki for this reply, I discover there are whole set of economic papers suggesting bubbles completely unrelated to its intrinsic value and economic fundamentals. Will Read those paper when I have time.
Sucks that Sam lost his bet because as far as I'm concerned he "won" his point (I.e. there was clearly not a bubble and all these 1,2,3 companies did amazing). Still, it's great that it's going to a charity
Seems odd to me to deny bubble talk, then base "success" on market cap. Outsized market caps are associated with bubbles. There are a few companies in there for which survival is questionable.
Many here are claiming he lost the bet on #1, but consider the details:
Predicted Aggregate value: $200B
Actual value: $145B (Math in [1])
His prediction is off by 25%. Technically a lost bet, but I'd say a prudent bet as a VC.
As for #2, #3, he wins them outright. Overall, being 25% off the most optimistic prediction isn't too bad a loss. I'd say he won the argument convincingly.
I will note that anyone above average intellect in his position (as an investor with gobbles of analytics, best in class prediction models and advisors, and access to thousands of high quality pitches to see down the pipeline) would likely predict as he did, so while he won, he wasn't clairvoyant, he was merely following the data.
He technically has until March of 2020. I still think there’s a chance that he pulls #1 off (SpaceX pulling off human flights in Q1 and re-raises, Airbnb going public as a profitable and defensible business, Uber and rationalization in ridesharing and delivery + continued execution)
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