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This is what a tech bubble looks like

How to avoid dead unicorns in your tech investments

Universal/Courtesy Everett Collection

There’s a bubble in tech stocks, and venture capitalist Bill Gurley says lots of unicorns will die this year. Do you have unicorns in your portfolio?

About a week ago, at a shareholder meeting for Apple Inc. AAPL, +0.13% two separate wingnuts asked the tech giant whether it would be purchasing electric-vehicle manufacturer Tesla Motors TSLA, +0.18% .

This, my friends, is what a tech bubble looks like.

I won’t spend any more time on how ludicrous this buyout idea is. I already wrotea whole column last month about going after Tesla would be a gigantic waste of money that would result in a measly 1% revenue bump for the smartphone giant despite a roughly $30 billion price tag on the deal.

But it’s worth noting the Apple-Tesla talk as a sign of how feverish the Silicon Valley crowd has become. It seems there is no high-profile name not worth owning, no premium that’s too rich for a “disruptive” product, and no way investors can’t imagine themselves swimming in piles of cash after they buy in.

What a crock.

With each passing day, there are more and more signs that tech investors are in full-on, delusional greed mode, where any flashy gizmo is seen as a guaranteed path to big-time returns.

But those who don’t wise up soon may find themselves in a world of hurt.

Why one VC is very worried

This year’s South by Southwest conference has been full of the expected tech-loving drivel. But there also are some dark undertones for investors interested in something other than a keynote from Snoop Dogg.

Take venture capitalist Bill Gurley, who warned at SXSW that there is “a complete absence of fear” in Silicon Valley. He said the fairy tales of success will fall apart for many tech companies in 2015, and that we will “see some dead unicorns this year.”

And to make a bleak statement even darker, Gurley warned that such a crash could weigh on other sectors beyond tech, including real estate for communities like San Francisco that have relied on the tech bubble for success.

Gurley already was on my radar, having previously written on a similarly disturbing tech topic — the idea of a “risk bubble” driven in large part by initial public offerings and late-stage private placements, where companies with huge burn rates fool investors into thinking they are proven businesses simply by virtue of their scale.

He warned about how absurdly competitive these late financing stages have become despite the fact “very few of these companies are at a point where they could or should consider being public.” Still, investors are presuming a level of maturity and stability at these companies that really have little of either.

Some bulls will simply scoff and say that Gurley is wrong, that he’s just another disgruntled wannabe who has missed out on some of the sexiest start-ups of 2015.

Except he’s invested in Uber, DropBox and SnapChat, among others. So this guy actually is talking against his own book with this pessimistic outlook.

That should tell you something.

http://www.marketwatch.com/story/this-is-what-a-tech-bubble-...