The five things the tech bubble got right – Financial Times

When the dotcom bubble burst in 2000 many investors slapped their foreheads at their collective stupidity and shouted: what were we thinking? How was it that Pets. com , a profitless start-up more famous for its floppy-eared sock puppet mascot than any coherent business plan, could float on the Nasdaq before going bust within the year?  

Some investors may be squirming again today as they watch the 29 per cent fall in the particular Nasdaq this year and survey the wreckage of special purpose acquisition companies , which enabled several profitless businesses without coherent business plans to come to market. These Spacs had been, in the words of one veteran investor, the particular “last degenerate spasm associated with an over-extended bull run. ”

However , as the tech entrepreneur Paul Graham wrote inside a brilliant essay within the aftermath of the first dotcom crash, stock market investors were right about the direction of travel even if they had been wrong about the speed of the particular journey. “Despite all the nonsense we heard during the bubble concerning the ‘new economy’ there was the core associated with truth, ” he wrote in “ What The Bubble Got Right ”.  

Written in 2004, Graham’s list of 10 points the bubble got right still stands the test of time. The particular internet has indeed revolutionised business. Casually dressed, California-based, 26-year-old nerds with good ideas have often out-innovated 50-year-old suits with powerful connections. Technology doesn’t add, it multiplies, he wrote.

What have traders got right in the latest bubble?  

It would be fascinating to hear Graham’s updated thoughts. Sadly, he has not yet replied to my email. So , to trigger the debate, here are five items I think the particular latest bubble got correct, drawing on interviews along with investors plus entrepreneurs. FT readers will doubtless have better, or contrary, ideas.  

First, the stock market has been right in order to attach enormous value to data, even if accountants have a hard time recognising this around the balance sheet. Those companies that will can gather, process and exploit meaningful data have a significant competitive edge in almost every market.  

Second, while globalisation may be slowing, e-globalisation is accelerating. The International Telecommunication Union estimate s that 4. 9bn people — or even 63 per cent of the world’s population — were connected to the internet by 2021. It is targeting 100 per cent by 2030. Not only are people increasingly accessing the particular internet but they are accessible upon it, too. A teenage programmer in a bedroom inside Tallinn or Lagos or even Jakarta can reach a global audience overnight.  

Third, the Covid pandemic offers permanently changed the world of work. Stock market investors might have suffered a sugar rush within excessively bidding up lockdown favourites such as Netflix, Spotify, Peloton plus Zoom. But many companies will never be able to force valuable employees back in order to the office. So-called liquid enterprises that successfully hire and manage workers around the world are going to thrive — as are the companies that service this decentralised workforce.  

Fourth, the energy transition will translate into colossal stock exchange wealth. Tesla might possess become the most overhyped, if not overvalued, company on the planet. But simply by spearheading the particular electric vehicle revolution, it nevertheless symbolises an important trend.  

Fifth, the evangelists touting crypto plus Web 3 may have so far failed to deliver numerous answers, however they are asking the particular right questions. How do we own and trade digital assets? “Blockchain is a game-changer. It will be going to restructure the back office of the particular world, ” says one bank chief executive.

This year’s cyclical downturn in public and private tech markets is crushing these secular trends. But in the past few weeks investors have been warming once again to the attractions associated with fast-growing technology companies. One example is usually Figma, the collaborative software business that has just agreed an eye-popping $20bn takeover offer from Adobe.  

Dylan Field, Figma’s 30-year-old co-founder, tells me his company continues to be built within the “mega-trends” reshaping the particular tech sector. About 81 % of Figma’s active users are usually now outside the US. It may have become a cliché to say that “software will be eating the world” (to use the tech investor Marc Andreessen’s phrase) but it remains true. “People assume that it is over. But it is just starting, ” Field says.  

At times, the particular latest technology bubble has resembled the unintentional dotcom Ponzi scheme described by Graham at the beginning of the century. But that does not mean investors’ instincts were not sound, both then and now. The only question is definitely: what price to attach in order to them?

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