I read On Truth and Untruth: Selected Writings by Nietzsche yesterday. It was chewy, but soaked me in an interesting set of ideas about what words mean, along with a bunch of stuff around the concept of truth.
I get a lot of inbound random email where I get asked a lot of questions, so I see lots of questions repeat or get asked in different ways. For example, I continually get asked some version of “How do I get a job as a VC” and point everyone at my partner Seth’s post How To Get a Job In Venture Capital.
This morning, as I was grinding through email, I saw a few questions that could be generally categorized as “Are we in a bubble?” There were different flavors, but if I summarized, it would be:
- Is the public market in a bubble?
- Is VC in a bubble?
- Are SPACs a bubble?
Whenever I see the word bubble, the phrase “Bubble, bubble, toil, and trouble” comes into my mind, which I know is not how the Macbeth Song of the Witches goes, but that’s just how my brain works.
Oh – you want a brief interlude for the Song of the Witches? Ok – here it is.
Round about the cauldron go:
In the poisoned entrails throw.
Toad, that under cold stone
Days and nights has thirty-one
Sweated venom sleeping got,
Boil thou first i’ the charmed pot.
Double, double toil and trouble;
Fire burn and cauldron bubble.
Fillet of a fenny snake,
In the cauldron boil and bake;
Eye of newt and toe of frog,
Wool of bat and tongue of dog,
Adder’s fork and blind-worm’s sting,
Lizard’s leg and owlet’s wing.
For a charm of powerful trouble,
Like a hell-broth boil and bubble.
Double, double toil and trouble;
Fire burn and cauldron bubble.
Scale of dragon, tooth of wolf,
Witch’s mummy, maw and gulf
Of the ravin’d salt-sea shark,
Root of hemlock digg’d i’ the dark,
Liver of blaspheming Jew;
Gall of goat; and slips of yew
Sliver’d in the moon’s eclipse;
Nose of Turk, and Tartar’s lips;
Finger of birth-strangled babe
Ditch-deliver’d by a drab,
Make the gruel thick and slab:
Add thereto a tiger’s chaudron,
For the ingredients of our cauldron.
Double, double toil and trouble,
Fire burn and cauldron bubble.
Cool it with a baboon’s blood,
Then the charm is firm and good.
If you enjoyed that, now you know why I think of this phrase every time I hear the word bubble.
Double, double toil and trouble, Fire burn and cauldron bubble.
My answer to the bubble question is, “I have no idea, and I don’t care.” I’ve never tried to time the markets. I am not going to ever try to time the markets. Instead, I’m going to keep working on what I’m obsessed about and try to improve each thing regardless of the macro-dynamics.
I went looking for Baboon Blood on Amazon to make my charms firm and good. I didn’t find anything other than a song from Art Zoyd. I did, however, find (and buy) a Baboon Blood flask via a Google search.
My favorite Mark Twain post, which I share with my close friend Phil Weiser (the Dean of CU Boulder) is “History doesn’t repeat itself, but it does rhyme.”
There is a lot of rhyming going on. If you want a quick taste, go read today’s Fred Wilson’s blog post Coming Up With A Better Name For NYC’s Tech Community.
If you know me, you know that it think that it is tragic to label things Silicon Blah. New York isn’t Silicon Alley. It’s New York. And Fred has been ranting about this since at least 2008 when he made a public plea to bury the name Silicon Alley.
Surprise. In 2015 there’s apparently a new effort in New York to rekindle with force the name Silicon Alley.
Here are some rhymes I hear on an almost almost basis.
- “There is no bubble.”
- “Raise as much money as you can.”
- “Things are structurally different this time.”
- “The only place to build a tech company is in Silicon Valley.”
I was at HBS the other day talking to a bunch of second year students about anything they wanted to talk about (we just did 90 minutes of Q&A). I just let them take the conversation where they wanted. The questions were great, but some of what they were hearing about venture capital was scary as shit. A handful of them had jobs in venture capital firms and we talked about how to be effective as a freshly minted associated. They had heard insane suggestions like “The market is hot – do as many deals as you can before it all crashes.”
Um. Yeah. What? Are you fucking kidding me? It’s not about doing the deals. If you do a bunch of shitty momentum deals as fast as you can, you are simply emulating what most VC firms (including the one I was part of) did in 1999 when we committed an entire $600 million fund in nine months. At one point that fund was up over 2x on paper (TVPI for those of you that like names for the different VC metrics.) 15 years later the financial performance (DPI) of that fund is a disaster. We didn’t get lucky and have one company that bailed us out. Too bad for us.
I told them it’s not about getting into the deals. It’s about building real value and then over time monetizing your investments. Having a strategy, being deliberate, and executing that strategy over a long period of time.
But suddenly so much of the focus is about getting into the deals. Venture Investing Just Had Its Biggest Q1 in 15 Years, Says PwC Report. $13.4 billion in Q1 in 1020 deals. Some other statements, all obvious stuff based on what everyone is seeing on a daily basis. But the headlines, and the focus, is all about input. Now, I haven’t read the PWC Report so they might have a deep analysis on the exit math, and then input / output dynamics that justify $13.4 billion in Q1 as a reasonable number. Or a segmentation analysis that shows that $7 billion of it is actually a substitution effect for what would have otherwise been public money going into IPOs, so really it’s only $6.4 billion going into venture capital.
History doesn’t repeat itself, but it does rhyme.
Now, don’t misinterpret what I’m suggesting. The easy sound bite “Feld thinks there is a bubble.” But that’s not even close to what I am saying. I have absolutely no idea whether there is a bubble. I have no idea where we are in the current part of the cycle. I have no idea what the dynamics of the cycle are.
But it’s easy to see the rhymes. And they are super helpful in understanding, and reinforcing, the best way to execute an effective strategy. But only if you are looking for them, thinking critically, and acting accordingly.
Don’t be the scorpion in the famous scorpion / frog parable. And always remember that history doesn’t repeat itself, but it does rhyme.
“Double, double toil and trouble; Fire burn, and caldron bubble.” – Macbeth
Every time I hear the word “bubble” I think of that quote from Macbeth. I also think of Tulip Mania and the South Sea Company which purportedly was the source of the concept of an economic bubble. And then I remember Charles Mackay’s classic book “Extraordinary Popular Delusions & the Madness of Crowds.”
When I returned last weekend from a week off the grid I encountered the word “bubble” over and over again when referring to the tech industry. A variety of people were using it to describe the current situation. This has been going on for at least a quarter or two, but the velocity of it seems to have picked up with a wave of high priced financings along with large financings for nascent companies. While plenty of tech bloggers were tossing around the word “bubble”, I also noticed it among the mainstream media. But more interestingly I saw it in my twitter feed from some entrepreneurs and VCs who I respect a lot. So I spent some time on my run yesterday rolling the idea of a bubble around in my head.
In the tech industry, the great Internet bubble inflated between 1999 and 2000 and deflated (or popped) in 2001. I remember it well as 2001 was easily the most challenging year of my business life. I made a lot of mistakes in 1999 and 2000 that I’ve hopefully learned from (I believe I have) and took on a lot of challenging things between 2001 and 2005 which laid the groundwork for the business context that I find myself in today. So, in hindsight, the great Internet bubble of 2001 was very powerful and useful to me, even though it was very painful.
I refuse to make predictions as the only thing I know with certainty is that some day I will be dead. I view predictions as irrelevant in the context of what I am working on and trying to accomplish. Sure – I pay attention to what is going on around me, have hypotheses about what’s going to happen, and adjust my behavior accordingly. But I think making predictions with certainty such as “we are in a bubble” are useless, especially in the absence of recommendations about what to do to either defend against or take advantage of the situation.
I find this discussion about bubbles especially bizarre and entertaining against the backdrop of the downward economic cycle of the past few years. In 2008, everyone in business and politics was consumed with the “global economic crisis”. However, entrepreneurs just put their heads down and continued to accelerate the current web revolution which started around 2004 with “Web 2.0” being articulated by Tim O’Reilly. Today, there is once again enormous focus on entrepreneurship as the salvation for many things, with the naysayers starting to say “but it’s a bubble” or some variant.
If you recognize that we are in a strong, positive, upward segment of the current “tech company creation cycle”, that’s more than enough. You should accept that we’ll be back in a downward part of the cycle at some point, but that we don’t know if it’ll be in a week, month, year, or decade. We also won’t know the slope of the curve although if you are a hedge fund trader you probably think you can calculate the derivative of some equation about the future that will tell you what to buy and sell. Whatever – have fun and good luck.
If you are an entrepreneur, you can build a significant, powerful, sustainable business taking advantage of market expansion during the up cycle and consolidating your position during the down cycle. Don’t get distracted by speculating about “bubbles” other than the ones in your bathtub. Instead, spend your energy creating amazing products, thrilling your customers, building an awesome organization, and living your life. Always remember that one day you too will be dead.