High-Tech Investment Frenzy, Then and Now

By: David Caploe   Date: 14 April 2011

About The Author

David Caploe

Honors AB in Social Theory from Harvard and a PhD in International Political Economy from Princeton.

David Caploe, EconomyWatch Contributor

 

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Webvan - Tech Favorite Crashed & Burned 10 Years Ago:
Lesson Learned or Shape of Things To Come ???
Credit: Thomas Hawk

14 April 2011.

Banks pouring money into technology funds, wealthy clients and institutions clamoring to get pieces of start-ups, expectations of stock market debuts building —

as Wall Street’s machinery kicks into gear, some investors with memories of the Internet bust in the spring of 2000

are wondering whether this sudden burst of activity spells danger for someone — whether investors, the industry, or both.

With all the "irrational" [ ;-) ??? ] exuberance, valuations are soaring.

Investments in Facebook and Zynga have more than quintupled the implied worth of each company in the last two years.

The social shopping site Groupon is said to be considering an initial public offering that would value the company at $25 billion.

Less than a year ago, the company was valued at $1.4 billion.

“I worry that investors think every social company will be as good as Facebook,”

said Roger McNamee, a managing director of Elevation Partners and an investor in Facebook,

who co-founded the private equity fund Silver Lake Partners in 1999 at the height of the boom.

“You have an attractive set of companies right now, but it would be surprising if the next wave of social companies had as much impact as the first.”

Funds set up by Goldman and JPMorgan Chase have invested in Internet start-ups like Facebook and Twitter or funds with stakes in those start-ups.

Even the mutual fund giants Fidelity Investments and T. Rowe Price have stepped up their efforts, placing large bets on companies like Groupon and Zynga.

Thomas Weisel, founder of an investment bank called the Thomas Weisel Partners Group that prospered in the first Internet boom,

says he is “astounded” by the amount of money now flooding the markets.

“I think it’s much greater today,” he said.

“The pools of capital that are looking at these Internet companies are far greater today than what you had in 2000.”

Yet there are notable differences between the turn-of-the-century dot-com boom and now.

For one, the stock market is not glutted with offerings.

In 1999, there were 308 technology I.P.O.’s, making up about half of that year’s offerings, according to data from Morgan Stanley.

In 2010, there were just 20 technology I.P.O.’s, based on Thomson Reuters data.

More important, the tech start-ups that have attracted so much interest from investors have real businesses — not just eyeballs and clicks.

Companies like Facebook have fast-growing revenue.

Groupon, which has been profitable since June 2009, is on track to take in billions in revenue this year.

And since 1999, when 248 million people were online -- less than 5 percent of the world’s population --

broadband Internet and personal computing have become mainstream.

Today, about one in three people are online, or roughly two billion users,

according to data from Internet World Stats, a Web site that compiles such numbers.

“In those days, you had tiny, little companies going public that hardly had a business plan,”

Stefan Nagel, associate finance professor at Stanford University, said.


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