West's tech bubble is about to burst - top investor

Sir Michael Moritz, chairman of Sequoia Capital (Photo from wikipedia.org)
A dot-com bust could soon take place all over again, as a number of tech companies in the West are valued higher than their earnings will ever justify, says a billionaire investor who got rich in the industry.

Many young technology companies valued at $1 billion or more – known in the industry as “unicorns” – are expected to crash soon, Sir Michael Moritz, chairman of Sequoia Capital, told The Times of London on Tuesday. “There are a whole bunch of crazy little companies that will disappear. There are a considerable number of unicorns that will become extinct,” Moritz said.

Moritz was an early investor in Google, PayPal and Yahoo, which helped him to amass an estimated fortune of $2.7 billion. He is now warning that the “euphoric” atmosphere in Silicon Valley is causing “sporty” valuations for “absolutely everything.”

Even the zaniest ideas can attract money,” Moritz said. “There are some companies that don’t deserve the valuations they have.”

Bill Gurley, a partner at Benchmark Capital, made a similar statement last week at South by Southwest (SXSW), an annual music, film and interactive festival in Austin, Texas.

I do think you'll see some dead unicorns this year,” Gurley warned in his keynote address at the SXSW technology conference. Gurley, who has invested in Uber and Snapchat, warned of the irrational exuberance among the tech companies and investors. “There is no fear in Silicon Valley right now. A complete absence of fear,” he said.

Read More: Uber: A small step towards world bankruptcy

Investors have poured billions into taxi app Uber, the online scrapbook Pinterest, and the photo-sharing Snapchat in recent weeks – even though the companies, which are valued in the billions, are still experimenting with ways to make money from their users.

Valued at over $41 billion, Uber is the second most-valued technology start-up in the world. Snapchat is third at $19 billion, while Chinese smartphone manufacturer Xiaomi is worth $46 billion, according to investors.

Moritz sees this as a sign of a shift in the balance of power, describing China as “probably the most vibrant setting for start-ups in the world.” Seven of the 20 most valuable internet companies in the world are Chinese, he said. “That should shake the fillings out of the teeth of everyone in the West.”

Mark Cuban, another respected tech investor, argued earlier this month on his blog that the current tech bubble was “far worse” than the one that burst in 2000.

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today,” he wrote.

Moritz agrees that many companies have “fly-by-night business models or fly-by-night pretensions” today, as others did 15 years ago. However, many companies also have secure and sustainable business models. “There are also a good number that will flourish,” he said.