Private Equity Guys Warn of Internet Bubble


Some of the biggest names in the private equity business believe that a financial bubble is forming in Internet assets.

"There's clearly an Internet bubble," said David Bonderman, the founder of TPG Capital, Monday.

Bonderman was speaking at a panel on "Global Opportunities in Private Equity" at the Milken Institute Global Conference in Los Angeles.

"It's easy to say there is an Internet bubble, largely because there is," said Jonathan Nelson, the founder and chief executive of Providence Equity Partners.

Both went on to take jabs at Groupon, the online coupon site said to be planning an initial public offering later this year. The IPO will supposedly be priced at a level that will value the company between $15 million and $20 milliion.

"Groupon doesn't do anything that four of us with a phone couldn't do," Bonderman said.

The clearest sign that a bubble was forming in Internet assets is the willingness of investors to commit capital with little or no knowledge of the companies involved, Nelson added.

"What's troubling is the process. Investors supporting Facebook's valuation made the decision to invest with no information. That's not a healthy market. It's really troubling," Nelson said.

David Rubenstein, the co-founder and managing director of the Carlyle Group, agreed that Internet companies are likely overvalued.

Still, Bonderman warned against trying to short the bubble.

"Don't short anything," he said.

Mysteriously, Apollo Group managing partner Leon Black did not join his fellow panelists in bashing the Internet bubble. A self-described contrarian, Black simply remained silent while the others made fun of current valuations of internet companies.

"The Internet is a problem," Black said. But he went on to say that it was a problem because it was difficult to use leverage to increase profitability of investments. He did not mention the idea of a "bubble."


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