When the dot-com bubble burst in 2000, many investors slapped their foreheads at their collective stupidity and shouted: What were we thinking? How could Pets.com, a non-profit startup better known for its floppy-eared doll mascot than any coherent business plan, float on the Nasdaq before crashing within the year?
Some investors may be rocking again today as they watch the Nasdaq fall 29 percent this year and clear the wreckage of special purpose acquisitions, enabling several nonprofits to roll out coherent business plans to the market. These Spacs were, in the words of one veteran investor, “the last decadent spasm of an overly extended bullish contest.”
However, as tech entrepreneur Paul Graham wrote in a great article in the wake of the first dotcom crash, stock market investors were right about the direction of travel even if they were wrong about the speed of the flight. Despite all the nonsense we heard during the bubble about the ‘new economy,’ there was a gist of truth, he wrote in ‘What the bubble got into.’
In 2004, Graham’s list of 10 things the bubble has achieved still stands the test of time. The Internet has already revolutionized business. The casual wear geeks in California who are 26 years old and have good ideas for 50-year-old suits with strong connections often excel. He wrote that technology does not add, but rather multiplies.
What did investors get in the last bubble?
It would be great to hear Graham’s updated thoughts. Unfortunately, he has not yet responded to my email. So, to spark discussion, here are five things that I think the latest bubble has gone well, based on interviews with investors and entrepreneurs. FT readers will undoubtedly have better or different ideas.
First, the stock market was right to put tremendous value on the data, even if accountants have a hard time recognizing it on the balance sheet. Those companies that can collect, process and exploit meaningful data have a significant competitive advantage in almost every market.
Second, while globalization may be slowing, e-globalization is accelerating. The International Telecommunication Union estimates that 4.9 billion people – or 63 per cent of the world’s population – will be connected to the Internet by 2021. It is targeting 100 per cent by 2030. Not only are people more connected to the Internet, they can be accessed through it, too. A teen programmer in a bedroom in Tallinn, Lagos or Jakarta can reach a global audience overnight.
Third, the Covid pandemic has permanently changed the world of work. Stock market investors may have experienced a sugar rush in excessive bidding to close favorites like Netflix, Spotify, Peloton and Zoom. But many companies will never be able to force valuable employees back into the office. So-called liquid organizations that successfully hire and manage employees around the world will thrive – and so will companies that serve this decentralized workforce.
Fourth, the energy transition will translate into massive wealth in the stock market. Tesla has perhaps become the most overrated, if not overvalued, company on the planet. But by spearheading the electric vehicle revolution, they nonetheless symbolize an important direction.
Fifthly, evangelists promoting cryptocurrency and Web3 may so far have failed to provide many answers, but they are asking the right questions. How do we own and trade digital assets? “Blockchain is a game changer. It will restructure the back office in the world,” says one CEO of the bank.
This year’s cyclical downturn in public and private technology markets has crushed these secular trends. But in the past few weeks, investors have once again returned to the attractions of fast-growing tech companies. One example is Figma, a collaborative software company that just agreed to a staggering $20 billion takeover offer from Adobe.
Dylan Field, the 30-year-old co-founder of Figma, tells me his company has been built on “mega-trends” that are reshaping the tech sector. About 81 percent of active Figma users are now outside the United States. It may have become a cliché to say that “software is eating the world” (in the words of tech investor Mark Andreessen), but it is true. “People assume it’s over. It’s just beginning,” says Field.
At times, the latest tech bubble resembled the unintended dotcom ponzi scheme that Graham described at the turn of the century. But that doesn’t mean investors’ instincts weren’t sound, then and now. The only question is: What price should we attach to them?