Mark Cuban
Photograph by Tony Rivetti — ABC via Getty Images
By Dan Primack
March 6, 2015

Yesterday there was a lot of online and cable news debate over the notion of an early-stage tech investment bubble, prompted by this blog post by entrepreneur, investor and NBA franchise owner Mark Cuban. More specifically, Cuban argued that today’s ‘bubble’ is worse than the 2000 bubble because this version involves so many individual investors plugging money into securities for which there is no liquidity.

I see why everyone is talking about what Cuban wrote, but his argument is bizarre.

To start, let me stipulate that there was more liquidity for Pets.com shares in 2000 than there is for new stock in a 6-month-old mobile app (although there may be more liquidity for that mobile app stock today than there was for still-private Pets.com stock in 1999, but that’s beside the point).

The trouble with Cuban’s thesis, however, is that the vast majority of “angels” investing in those mobile apps should be able to afford possible losses, because they are accredited investors (read: millionaires and/or those making at least $200k per year). Remember, equity crowdfunding rules have not yet been finalized. And even when (if?) equity crowdfunding is legalized, there are expected to be strict limits on the amount that unaccredited investors can shell out (at least per company). Compare this to 2000, when anyone could put their life savings in a specious public stock. How could it be worse to lose all of a $5k investment in an illiquid startup than $75k of a $100k investment in a liquid dotcom-era company?

It might have been more interesting to see Cuban make a more indirect argument, about how unaccredited investors can plow cash into mutual funds that are investing in pre-IPO startups at massive valuations. But, even there, such investments typically represent just a small portion of overall portfolio holdings.

Cuban may ultimately be proven right that today’s tech valuations are even more inflated than were the tech valuations of 2000. But it won’t be small individual investors who bear the brunt of the fallout.

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