One of the ways internet business owners get rich is through IPOs. Recent internet company IPOs include Quinstreet and Demand Media. Meanwhile, Facebook and Groupon get all of the press. Neither has had an IPO. Based on recent private transactions of ownership, Facebook is worth over $70 billion and Groupon over $5 billion. Of course, the owners of both have what amounts to a piece of paper which is worth whatever someone will pay for it. Wonder why Mark Zuckerberg still rents? He doesn’t have $1 billion in the bank.
The recent real estate bubble in the United States left a lot of people wondered where all of the money went. How can the economy crash, the dollars just changed hands, right?
If your property triples in value, and you sold it, you made a lot of money, right? If you took out a home equity loan, and bought a boat, someone made money selling you the boat?
When the stock tech bubble was at its peak over a decade ago, some entrepreneurs were feeling very comfortable looking at a net worth of hundreds of millions to billions of dollars. At least that was what formulas told them their net worth was.
In this case net worth was calculated by taking how much ownership I have multiplied by what someone would pay for a fraction of it based on how much of that fraction was available for sale today. That is not really a good way to look at the valuation of anything (and it goes both ways.)
A similar thing happened during the real estate bubble. A lot of people thought they got rich, and really didn’t. Those home equity loans are still on someone’s balance sheet. That is why the US Federal Reserve and Treasury have been doing all kinds of weird things since the 2008 stock market implosion — basically changing the rules to keep bankrupt companies afloat. This is a way to prevent a short term economic collapse but it comes at a very expensive long term cost. Either the banks become zombie institutions or the US government and all that benefit from its spending absorb those losses.
In the end, is everyone as a whole richer?
No. The people that got richer are the ones who cashed out. If your purchasing power is greater now, post-bubble, because of the bubble, you got rich from it. In fact, the very act of cashing out involves taking liquidity from someone else — just like what will happen when Mark Zuckerberg and friends begin trading their Facebook ownership for cash.
If you want to get rich from stock and real estate bubbles you need to have equity early and cash out on the ride up. By the late peak it is too late to cash out because you simply do not have enough time or enough buyers. Alternatively you can arbitrage yourself through a bubble buying early on and selling as much as possible toward the end. That is what “flippers” do with real estate. If you buy from a flipper to flip for yourself, good luck.
A lot of discussion is going on about a new tech bubble. This started years ago, but Groupon’s recent rejection of Google’s $5 billion+ offer has brought the web 2.0 bubble (or whatever we are calling it) to the top front of web entrepreneur’s minds.
There damn well may be a new web tech bubble right now. Is hopping on Second Market and buying up Facebook stock a good idea? Make your own decision. One thing is clear, your going to have to put mid nine-figures in to it if you want to become another Facebook billionaire.
Over the past six years it has been very disappointing seeing other website publishers fail to take their company seriously. When you build something online that works, and you have your shit together, it grows fast. If you are an innovator let the people who read the how to get rich online blogs fight over the tiny markets.
We are hardly 15 years in to the internet being a mass market medium. Imagine the first oil boom, only 15 years in. Unlike oil, this industry will still be around in 100 years. Buckle your set belts, if your smart you don’t need a stock or real estate bubble to become wealthy.