Business

Five things the tech bubble got right

When the dotcom bubble burst in 2000, many investors slapped their foreheads at their collective stupidity and shouted: What are we thinking? How is it Pets.comA nonprofit startup known for its soft-eared puppet mascot more than any coherent business plan, could float on the Nasdaq before bankruptcy for the year?

Some investors are likely to get nervous again today as they see the Nasdaq drop 29% this year and the survey wreckage of special purpose acquisition companies, which has allowed a number of unprofitable companies without a consistent business plan to hit the market. These Spacs are, in the words of one veteran investor, “the final degenerative contraction of an over-prolonged bull run.”

However, as tech entrepreneur Paul Graham wrote in a brilliant essay on the aftermath of the first dotcom crash, stock market investors were right about the direction of the move even when they were wrong about it. speed of the journey. “Despite all the nonsense we heard during the ‘new economy’ bubble, there was a core of truth,” he wrote in “What The Bubble Got Right“.

Written in 2004, Graham’s list of 10 things the bubble got right has stood the test of time. The Internet has truly revolutionized business. The 26-year-old nerds, who live in California, dress impromptu with good ideas, often renewing their fifties with strong connections. Technology does not add, he writes, it multiplies.

What did investors have right in the latest bubble?

It will be interesting to hear Graham’s updated thoughts. Sadly, he still hasn’t replied to my email. So to spark the debate, here are five things I think the latest bubble got right, based on interviews with investors and entrepreneurs. FT readers are sure to have better, or more contradictory, ideas.

First, the stock market was right to attach enormous value to the data, even when accountants had trouble recognizing it on the balance sheet. Companies that can collect, process, and mine meaningful data have a significant competitive advantage in almost any market.

Second, while globalization may be slowing down, the globalization of electronics is accelerating. The Estimates of the International Telecommunication UnionThere are 4.9 billion people – or 63% of the world’s population – connected to the Internet by 2021. The goal is 100% by 2030. Not only are people increasingly accessing the Internet, they are also accessing it on there. A teenage programmer in a bedroom in Tallinn or 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 suffered from the sugar rush of over-bidding on beloved apps like Netflix, Spotify, Peloton, and Zoom. But many companies will never be able to force valuable employees back into the office. So-called fluid businesses that successfully hire and manage employees around the world will thrive – so will the companies serving this decentralized workforce.

Fourth, the energy transition will translate into wealth on the massive stock market. Tesla may have become the most overrated, if not overvalued company on the planet. But as it leads the electric vehicle revolution, it still represents an important trend.

Fifth, crypto and Web 3 evangelists may not have provided many answers so far, but they are asking the right questions. How do we own and trade digital assets? “Blockchain is a game changer. A bank executive says it will restructure the world’s back offices.

This year’s cyclical downturn in the public and private tech markets is crushing these secular trends. But in the past few weeks investors have warmed up again to the appeal of rapidly growing technology companies. An example is Figma, a collaborative software business that has just agreed an attractive $20 billion takeover offer from Adobe.

Dylan Field, Figma’s 30-year-old co-founder, tells me his company has built on the “big trends” that are reshaping the tech sector. Approximately 81% of Figma’s active users are currently located outside the US. It might have become a cliché to say that “software is eating away at the world” (to use Tech investor Marc Andreessen’s phrase) but it still holds true. “Everybody thinks it’s over. But it’s just getting started,” said Field.

Sometimes, the latest tech bubble resembles the unintentional Ponzi dotcom scheme described by Graham at the turn of the century. But that doesn’t mean investors’ instincts don’t match, both then and now. The only question is: what price to attach to them?

john.thornhill@ft.com

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