PayPal's Lessons for Modern Valuations

“Predictions are hard,” Yogi Berra once quipped, “especially about the future”. Yes they are. But in today’s AI boom/bubble, how exactly can we predict the future? According to Silicon Valley venture capitalist Aman Verjee, access to the future lies in the past. In his new book, A Brief History of Financial Bubbles, Verjee looks at history - particularly the 17th century Dutch tulip mania and the railway mania of 19th century England - to make sense of today’s tech economics. So what does history teach us about the current AI exuberance: boom or bubble? The Stanford and Harvard-educated Verjee, a member of the PayPal Mafia who wrote the company’s first business plan with Peter Thiel, and who now runs his own venture fund, brings both historical perspective and insider experience to this multi-trillion-dollar question. Today’s market is overheated, the VC warns, but it’s more nuanced than 1999. The MAG-7 companies are genuinely profitable, unlike the dotcom darlings. Nvidia isn’t Cisco. Yet “lazy circularity” in AI deal-making and pre-seed valuations hitting $50 million suggests traditional symptoms of irrational exuberance are returning. Even Yogi Berra might predict that.

* Every bubble has believers who insist “this time is different” - and sometimes they’re right. Verjee argues that the 1999 dotcom bubble actually created lasting value through companies like Amazon, PayPal, and the infrastructure that powered the next two decades of growth. But the concurrent telecom bubble destroyed far more wealth through outright fraud at companies like Enron and WorldCom.

* Bubbles always occur in the world’s richest country during periods of unchallenged hegemony. Britain dominated globally during its 1840s railway mania. America was the sole superpower during the dotcom boom. Today’s AI frenzy coincides with American technological dominance - but also with a genuine rival in China, making this bubble fundamentally different from its predecessors.

* The current market shows dangerous signs but isn’t 1999. Unlike the dotcom era when 99% of fiber optic cable laid was “dark” (unused), Nvidia could double GPU production and still sell every chip. The MAG-7 trade at 27-29 times earnings versus the S&P 500’s 70x multiple in 2000. Real profitability matters - but $50 million pre-seed valuations and circular revenue deals between AI companies echo familiar patterns of excess.

* Government intervention in markets rarely ends well. Verjee warns against America adopting an industrial policy of “picking winners” - pointing to Japan’s 1980s bubble as a cautionary tale. Thirty-five years after its collapse, Japan’s GDP per capita remains unchanged. OpenAI is not too big to fail, and shouldn’t be treated as such.

* Immigration fuels American innovation - full stop. When anti-H1B voices argue for restricting skilled immigration, Verjee points to the counter-evidence: Elon Musk, Sergey Brin, Sundar Pichai, Satya Nadella, Max Levchin, and himself - all H1B visa holders who created millions of American jobs and trillions in shareholder value. Closing that pipeline would be economically suicidal.

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