Is the madness back?

I am amazed during the last several weeks seeing what's going on with valuations, investments and potential IPOs.

Do not get me wrong, I am a techie and an entrepreneur. I bet on my ventures making money in one way or the other, but what I see outside is scary; it is like we have learned nothing from our past experience and we had several bubbles during the last decade.

Take facebook for example. This is a great company making a real revolution in the social lives of people! However, when people speak of valuation of 70 Billion and there are also people that speak of a trillion dollar in the future, I think this is terrible and ridiculous. Yes, this might happen but hey, even though facebook is amazing, we know that this is still a young company with an evolving product that gets more troubles and more competition (some of it disrupting such as social games). How can we even think of such high valuation?

Another example is groupon. Again, this company is a great new company, with a new refreshing model. But, it is easy to compete with, their model is less than 3 years old and people now speak of 15 Billion dollar IPO.

Greed is the source of the problem. Not necessarily the owners' greed, but rather the VCs and the banks supporting these companies. They keep shoving more money at a higher valuation expecting to push them up and get an even higher return.

Since money is not invested in new companies they can put large bulks into selected few companies and push them harder. Note that there is zero collateral.  Note also that if they fail, their ass is covered since everyone bet on the same horses. It is okay to fail.

To me this is more frightening than the sub-prime crisis. The stock will collapse at one day, maybe sooner and maybe later. There is no rational. The P/E ratio simply ceased to exist. It is fine for a VC to fail (this is their mandate after all). But now we see banks getting in, and after an IPO the public will get it. Everyone will want a piece of the pie, many will suffer in the end.

Please bring the sanity back to the world
Please do not let the greed blind your eyes

Amir