Michael:

Thanks for your post, which I found quite interesting. While I am not going to worry for the private equity firms, I feel less sure about the WEB 2.0 phenomenon.

I am on the impression that Google and the likes would either purchase companies with a large audience, or whose products fills a hole in their own offer. Granted, they often pay a price that looks insane for them. However, it leaves the vast majority of WEB 2.0 companies struggling to get an audience, or market traction. I am not even sure that visible companies like SociaText for instance would get a good valuation if sold.

During the .com bubble, any simple company, even the dumbest ones, got insane valuation.

My 2 cents …

I was in a Silicon Valley networking event just a few days after Google bought YouTube. Three out of ten entrepreneurs in the room had already started working on YouTube variants. What was shocking was that they were actually receiving quite a bit of interest from VCs. Since then I heard of at least three companies with some variant of video sharing / online video production that received venture or angel funding. Now, I don’t know the details of these companies so it is possible that they are really good investments. However, on the surface this sure looks like a bubble to me.

Nice post Mike. I get so tired of hearing folks talk about Web 2.0 while ignoring low hanging fruit that can be solved with "Web GetItDoneNow.0"

I totally agreed with you that this is a "bubble". I believe that many cash-ridden companies such as Goggle and Microsoft will go on buying shopping sprees just to make the news.

I feel that it is totally unethical for private equity firms to "flip" those small companies for their selfish financial gains while ignoring the fact that when companies are bought out, many of the workers receive pink slips.

I believe that Goggle eventually will struggle at low-30 as Microsoft. $450+ for their shares are just insane.

Michael,

You are on the money, no pun intended, about the private equity bubble that is about to implode. Unfortunately, the looming shakeout will affect more than the stock market. Virtually all of these deals are highly leveraged with debt. Unless the economy can withstand the decline in the stock market, many of these companies will not be able to generate the cash needed to service this debt. This will send secondary shocks through the banking industry, that would further harm the economy. Of course, the private equity guys who cashed out in time will be lurking to buy up these distressed and bankrupt companies at pennies on the dollar. Not a pretty sight for the rest of us.