However, the scale of today’s tech boom is not readily visible because much of the investment action has moved into the hands of big private players. In 1999, nearly 550 start-ups went public, and after many ended in disaster, the government tightened regulation of public companies. In part to avoid that red tape, this year only 11 tech companies have gone public. Many are raising money instead from venture capitalists or private equity funds. Venture capitalists have poured more than $60 billion into the technology sector every year for the past three years — the highest flows since the peak in 2000 — and private equity investors say there has never been a better time to raise money. -Ruchir Sharma, New York Times
Ruchir highlights the fact that since tech companies today have shifted their method of raising capital, that old metrics like PE Ratio are not an apples-to-apples comparison. The true scope of the bubble is hidden.
Companies like Apple (AAPL) and Google (GOOG) that are self-sustaining entities will be OK in the long term because they aren’t dependent on the equity markets. But unprofitable startups like Tesla (TSLA) will get washed away in the flood. New investor capital is the oxygen that they breathe and when new money stops flowing in, trouble ensues.
Now available in iBooks —> The Tesla Bubble