EXCLUSIVE: Mark Cuban says Bubble is Confined to This Place and Sector

The debate over an early-stage investment bubble is heating up. Although I am seeing a lot of evidence startup euphoria is becoming increasingly illogical, I want to know the thoughts of the all-time greatest market timer: Mark Cuban.

Mark sold his business at the height of the dotcom bubble and has been consistently transparent with his opinions on market psychology. He’s also an extremely active and successful investor and entrepreneur … and the guy sees mad deal flow.

Mark’s perspective is unique because he doesn’t confine himself to Silicon Valley or tech investing. In fact, his move to become a “shark” on the angel investing reality show Shark Tank is an extremely savvy move to diversify deal flow across both the US and every business sector.

Let’s learn what Mark sees from his perch …

Damien Hoffman: Mark, do you see a bubble in startup or early-stage investing?

Mark Cuban: There is a bubble in only tech investing in Silicon Valley. No where else in the U.S.

Hoffman: Can you offer an example?

Cuban: I was talking to an investor out in the Valley who said he doesn’t see any deals with a pre-money valuation under $4,000,000. That’s bubble pricing considering how cheap it is to start a tech company.

I also see games that are typically played in a bubble. The trick is for entrepreneurs to do a convertible that prices at a discount relative to a Series A. Then, they do a series A at an incredibly inflated price that significantly dilutes the investor.

Hoffman: So, what’s a savvy investor to do at this stage in the cycle?

Cuban: Fortunately, everywhere else in the country outside the Valley — except maybe in NYC — you can do real deals at real valuations. That’s what I try to do.

Hoffman: If the Valley bubble pops, will it end the cycle for all startups? Or is the rest of the country more stable than a proverbial “emerging market”?

Cuban: No. If the Valley bubble pops, it won’t impact the remainder of the country. It will impact only VCs who would find themselves having a much harder time generating returns for their investors.

Hoffman: Thanks for your insights, Mark! Good luck to the Mavs in the NBA Playoffs.

Cuban: Thanks!

Mark Cuban is a world-class entrepreneur and investor. He is the owner of the Dallas Mavericks and author of the book How to Win at the Sport of Business: If I Can Do It, You Can Do It.