Dallas Mavericks owner Mark Cuban knows a thing or two about tech booms. He made his fortune in the dot-com explosion of the late 1990s, founding and then selling Broadcast.com for more than $5 billion. By doing so, he also avoided the great tech bust that followed the boom. As a result, he's remained a billionaire, and gone to become a championship sports team owner, a TV star, and a powerful investor.
Today, Cuban thinks the bubble has returned in a far more dangerous way. In a post on his blog Wednesday evening, Cuban warned against the current mania of investment in apps and other smaller tech firms, writing "If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today."
The crux of his argument: While the tech bubble of 2000 was essentially a public stock bubble, today's bubble is in the private investment realm, leaving those who are in too deep no way to escape. Thousands of angel investors have sunk large sums into private companies, but have no mechanism to liquidate their investments if there's trouble. They can't sell their position, even if they realize it was a mistake.
Here's a key section of his post (emphasis his):
I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher
Because there is ZERO liquidity for any of those investments. None. Zero. Zip.
The only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.
If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?