The phrase “reality distortion field” (RDF) comes from Star Trek, but it also turns out to aptly describe what former Apple (NASDAQ:AAPL) chief Steve Jobs was able to do when communicating with his engineers: He had an uncanny ability to get them to believe they could do the impossible.
The RDF has, in fact, become a hallmark of Silicon Valley. And for the most part, it has been a great driver of break-out companies such as Google (NASDAQ:GOOG), eBay (NASDAQ:EBAY) and Facebook.
Yet it can get out of control, as noted in a recent piece in The New York Times. With huge amounts of venture capital sloshing around, it seems that just about any zany idea can get millions in funding. This is especially the case if the startup is in the way-cool social-networking space.
Interestingly enough, VCs are more than willing to accept failure. They’ll just invest more money and try another approach. It’s called a “pivot.”
But grizzled veterans of tech understand that booms turn into horrible busts. It’s jut a natural part of life in Silicon Valley.
One of the veterans who is getting concerned is Paul Kedrosky, a former Wall Street analyst who is now an private investor and editor of the popular blog Infectious Greed.
Kedrosky says venture capitalists are essentially dressing up their portfolios by purchasing pre-IPO shares of hot companies on the secondary markets. That’s going to make it incredibly tough to generate any decent returns.
Kedrosky thinks the bubble will eventually take down stocks such as Groupon (NASDAQ:GRPN), Zynga (NASDAQ:ZNGA) and LinkedIn (NYSE:LNKD):
“I have never seen such a generation of people shorting tech stocks. Usually the short community is more nervous about it, but there is a monolithic view that this generation of technology IPOs is completely broken.”
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
