Remember the tech bubble? If you do, I’m sure that you’ll remember the bursting of that bubble in mid 2000. Now, it seems as though the tech run-up is happening again.
To give us a little perspective, I want to quote something that CNNMoney ran on Feb. 4, 2000:
“Emerge Interactive, an online marketplace for cattle ranchers, gave a new meaning to the phrase ‘bull market’ today, when shares offered in its initial public offering soared 215 percent on their first day of trading.”
The article went on to say: “Emerge was part of a herd of technology-related IPOs that rose well beyond their offering price this week. The demand showed that investors’ enthusiasm for technology shares is unabated, and that they are willing to assign high market values to young, unproven firms.”
Listen to Ted di Stefano (6:53 minutes)
We all know what happened a few months after the article was written — the market for tech stocks tanked!
What about today? Do you think that the market for tech stocks is about to tank?
Brief History of the Tech Bubble
In the late 90s, the promise of technology was a relatively new phenomenon to the world. There was so much written about it and how easy our lives would become.
Many authors compared the technology revolution to the industrial revolution — a singular event that happens every 100 years or so. With so much hype about technology, the venture capitalists were, unfortunately, quick to get into the feeding frenzy.
As we now know, billions of dollars were lost as a result of this unbridled exuberance. To this day, Nasdaq is yet to fully recover from the massive losses of many of its members’ firms.
What happened during that time was that investors, both the real pros and the average man on the street, got so caught up with the tech “gold rush” that they forgot the fundamentals of investing.
Back in January 2005, I wrote an article for the E-Commerce Times entitled Tech IPOs Rebounding. Here’s how I described the dynamics behind the bursting of the tech bubble:
“But how could this crash of the tech stocks have been avoided? Fundamentals! Yes, the bankers forgot the fundamentals of investing. They forgot about well-written, feasible business plans — plans that prudently look at the probabilities of acceptance of a company’s products and/or services and a sustained market for them.
“They also forgot about conservatively prepared cash-flow budgets that show a ‘burn’ rate that can be reasonably supported by facts and figures, so that anyone investing in a deal knows reasonably well that the funds are there to support the company until it turns the corner and makes a profit.”
Can It Happen Again?
The reality is that the stock market and the economy have historically been subject to cyclical movements, some more pronounced than others. But, I truly believe that most of us have learned our lesson about becoming too caught up in the latest craze. Therefore, I don’t think that there is much of a near-term possibility that such a phenomenon would again hit the tech market.
If you recall, during the tech bubble, some business plans were written on the backs of restaurant placemats. Amazing as this may seem, some of those hastily prepared plans even served as the basis for certain tech companies’ raising millions of dollars from venture capital firms. I don’t think the venture capitalists will soon forget that fiasco.
The Future of Tech Stocks
In that same article of January 2005, I had some optimistic things to say about the future of tech stocks. Here’s just one of my comments:
“Looking at the horizon, I think that tech IPOs will be a really bright spot in the performance and growth of our financial markets. I might be an optimist, but I think that blue skies are heading our way and they are ‘tech-nicolored.'”
Do I still feel this way? Absolutely! There is no doubt in my mind that the tech revolution is here. And it’s still in its infancy. Technology has changed the world, and it will continue to do so.
In a recent article for the E-Commerce Times entitled, Technology: A Look Into the Future, I give what I believe is a glimpse into how the world will look 10-15 years from now and how technology has and will continue to transform the world.
With computers becoming ever more fast and powerful, we are really “steaming” down the road of progress.
And, I believe, that tech IPOs will follow the inevitable progress in technology — meaning that there are still plenty of tech IPOs to come.
There are companies in existence today that are startups, and others that haven’t even been conceived, that will become publicly traded companies and will have a significant impact on the economy, the stock market, and the pockets of the founders of those companies.
The technology revolution is unfolding. It’s going to be a fun ride.
Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at Ted@capitalsourcepartners.com.