Investors behind Linkedin, Dropbox dance around whether tech is in a bubble

Tonight on Bloomberg Television Studio 1.0, correspondent Emily Chang will try her darnedest to get Greylock Partners‘ David Sze and John Lilly to either confirm or deny whether a tech bubble is mounting in the Silicon Valley. And, to their credit, both Sze and Lilly effectively dodge direct answers about whether or not that’s the case.

Sze and Lilly have been at Greylock since 2000 and 2007, respectively, and have led Greylock investments in LinkedIn, Dropbox, Tumblr, and Digg — a slice of Greylock’s impressive investment portfolio.

In a preview clip of the interview, which airs at 7:30pm ET/PT, both Sze and Lilly speak about the cavalier climate of investments in the tech industry, with Sze indicating there is “too much money out there,” and called the current era “worrisome times” that could be dangerous if gone unchecked.

Sze said:

I think we’re being asked to take on a lot of risk. I think there is a lot of money in the system, and I think there’s a lot of optimism that’s causing pricing to be higher, that’s causing expectations to be higher. And I think we’re asked to take higher risks than you know, probably since ’99, 2000 timeframe.

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Although risk and behaviors on Sand Hill Road and beyond haven’t been this high since right before the bubble burst, Sze refused to call it a bubble.

The health of the technology industry has been in question in recent years, but now more than ever as prominent investor Bill Gurley predicted a market collapse in the near future at this year’s South by Southwest.

Sze cites the influx of mobile, which made “businesses that would’ve been terrible businesses—you know, an Uber, an Airbnb, et cetera—in previous generations,” actually worth investing in. And he explained the nearly 50-year-old Greylock as working on a “micro basis,” indicating they feel confident about the founders they invest in.

You know, even if they thought the idea was awful a decade ago.

For his part, Lilly avoided direct use of the b-word altogether:

I think the truth is some stuff is wildly overpriced and will look obviously so in retrospect.  There’s some stuff that feels wildly overpriced and will look the opposite in retrospect.

Throughout the interview, Lilly and Sze make a careful distinction about the risk of the market “out there” versus the capability of Greylock, and to some extent other firms they see as competition in rounds, to make smart investments.

That’s not altogether false — Greylock is one of just a handful of VC firms that have invested in multiple billion-dollar unicorn startups, with a count of four according to research done by Quartz and Dealbook. However, that feat does include Dropbox, which they acknowledged in the interview that Greylock invested in during an expensive Series B and did not gain a board seat from the deal.

Sze and Lilly both confirmed the high burn rates of companies and the substantial risks VCs are taking to get in with potentially successful businesses. But Sze also admitted during the interview that they “don’t do anything fancy” to with their liquidation preference — the term that VCs use to ensure which investors get paid first and how much. Instead, they choose to manage risk by “picking well” and prioritizing portfolio diversification.

So, in short: money is plentiful, prices are high, many companies are over-priced, there are high burn rates and a lot of risks, but don’t say the word, “Bubble.”

➤ Greylock Partners Q&A: ‘There’s Too Much Money Out There Right Now’ [Bloomberg Business]

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