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Michael Gracie

The spirit of rational valuation

People are still hurting from the tech market bubble of the late ’90s, and they have since moved on to real estate. This is a good thing – the average Joe didn’t really understand what they were investing in (and I am not sure they do now either). They cannot be held solely to blame – it was the wide-open IPO market that gave them access to those tech investments in the first place. Not any more.

Venture-backed startup valuations are on the rise, due mainly to merger and acquisition activity. Few mainstream folks have access to the private equity markets, and even fewer are paying attention to the balance sheets of those companies still standing after the crash. Meanwhile, it is the survivers gobbling up the scrappy innovators. They are using piles of cash to do it, which bodes well for both the entrepreneur and the users of the services, and we don’t have to deal with “irrational exuberance” that spoiled the last party. The investments are in the hands of those who understand the risks, and can live with the potential pain. Life is good.

***UPDATE***

But lets not get crazy. I don’t think it is a boom, but I do think the wealth (and risk) is being distributed in the right places. Then again, I am not John Doerr (obviously).

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