Overvalued companies causing tech bubble?

Tom_AndersonThe conversation is raging within the technology sector over whether or not a bubble is forming. And this argument is perfectly embodied by the valuation, or overvaluation, of three companies.

They have recently been valued at $17 billion, $10 billion, and $850 million. The big question is whether this will lead to more innovation and growth, or cause a sector burst.

These three companies symbolize the situation, and could be the key to foreseeing the impact…

Following another round of funding in June, San Fransisco-based Uber is valued at $17 billion.

Snapchat, the video and picture-vanishing service, turned down a $3 billion offer from Facebook, and has recently been in talks with China-based Alibaba over funding that could value Snapchat at $10 billion.

And BuzzFeed has just given up 10% of its equity to venture capital company Andreesson Horowitz in exchange for $85 million, which implies the online publisher is valued at $850 million.

There is no arguing with the fact that those are huge numbers, but are they dangerous?

The entire outcome of this situation is hinging on this:

Are the foundations of these types of companies strong enough to keep incredibly high valuations from crashing?

The fact of the matter is that we don’t know right now. However, we do know certain facts that could give us solid insight into the future of the technology sector.

For instance, we know that Uber has and is facing protests as well as legal battles as it defends itself as separate from taxi services.

And, Snapchat’s biggest issue could be its revenue production.

The point is that this doesn’t appear to be a fairytale for everyone involved at the moment. There are certainly issues for each company to overcome, but the big numbers attached to these companies aren’t necessarily too big either.

The most vital concept to take away from all this information is that we cannot get too complacent or fearful when we see the tech companies skyrocketing. We must stay vigilant and use all of our knowledge and available indicators to know when to enter, exit, and stay out of an investment.

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