The huge sums for acquisitions did not materialize out of thin air... (via The New York Times)
What about those start-ups raising mountains of cash from investors? The queasy truth is that many of those investors could afford to lose it all. Technology giants — Apple, Facebook and Google, among many others — are raking in cash. They might be overpaying for acquisitions, but there is no reason to think that should damn their bottom lines in the long term. The same goes for the rich individuals funneling money to young companies through venture-capital firms and other vehicles.
“Where’s the bulk of the ownership of these companies?” said Josh Lerner, a professor at Harvard Business School. “They’re mostly in the hands of a small number of venture funds.”
But the American public has bought into the tech boom, at least a bit, in a more concealed way. Big institutional investors, like pension funds, do put some of their money into private-equity and venture-capital firms. A drop in tech stocks or a flotilla of start-ups going belly up could sting Uncle Joe and Aunt Nancy that way.
And that downturn might already be taking hold. Recently, Bloomberg asked investors, analysts and traders if Internet and social-media stock valuations were unsustainable. Only 14 percent did not see a bubble. Even some tech companies themselves have argued that expectations have drifted too high. For instance, Netflix’s chief executive, Reed Hastings, recently said he sensed some “euphoria” driving the firm’s stock price. “We have a sense of momentum, investors driving the stock price more than we might normally,” Hastings said. “There’s not a lot we can do about it.”