“...how do we know when irrational exuberance has unduly escalated asset values...” - Alan Greenspan December 5th 1996.
18/Worry.While Alan Greenspan warned against a stock market bubble, Marc Andreessen prepared a Netscape 2-for-1 split at $165 after its $28 IPO 16 months earlier. The NASDAQ peak was still 3 years 3 months 5 days away.
— Marc Andreessen (@pmarca) September 25, 2014
The recent tweetstorms by Andreessen and Bill Gurley have tremendous parallels to Alan Greenspan’s warning decades earlier. Not only in content but more importantly in the role these men play within their respective economic empires. Marc Andreessen is the closest thing to the Federal Reserve Chairman for tech. He and his VC compatriots are attempting to prevent a collapse like the one that destroyed the internet 1.0 economy (which was born the day of the Netscape IPO).
Alan Greenspan’s Fed in 1996 existed to prevent disruptive swings in demand. In the pre-globalization era when the United States was substantially isolated from capital flows the Fed was able to strongly modulate demand via the supply of money. However, Mr. Greenspan was unable to stop the tech bubble because his control was not fine grained, he couldn’t pop a tech-localized equity bubble without killing the broader economy.
In the wake of the 2000 bubble, the flow of capital into tech companies is substantially gated by the venture capital community, with Mr. Andreessen in the lead. A company like Uber with massive revenues and growth would have IPO’d in 1999, but in 2014 it remains private; recently raising over a billion dollars. VCs have built the capacity to inject massive amounts of capital; Andreessen’s own firm raising another $1.5 billion fund in March.
As long as a tight-knit, well organized VC community continues to substantially control capital flows, as well as public expectations through Twitter forward guidance, the number and size of new tech companies will be controlled. To the extent that Marc Andreessen, Bill Gurley et al., the Tech Fed Chairmen, can sway public opinion The Bubble may be kept in check.