When the dot-com bubble burst in 2000, many investors slapped their foreheads at their collective stupidity and shouted: What were we thinking? How it was Pets.comcan a profitable startup better known for its floppy-eared mascot doll than any coherent business plan go public on the Nasdaq before going bankrupt within a year?
Some investors may be bending over again today, watching the Nasdaq fall 29 percent this year and exploring wreckage of special purpose companies, which allowed several unprofitable companies without coherent business plans to enter the market. In the words of one veteran investor, these Spacs were “the last degenerative spasm of an overextended boom.”
However, as tech entrepreneur Paul Graham wrote in a brilliant essay after the first dotcom crash, stock market investors were right about the direction of travel even as they were wrong about the speed of travel. “For all the nonsense we heard during the ‘new economy’ bubble, there was some truth to it,” he wrote in “That Bubble got the right“.
Written in 2004, Graham’s list of 10 things the bubble did right still stands the test of time. The Internet has truly revolutionized business. Casually dressed 26-year-old nerds from California with good ideas often outperform a well-connected 50-year-old innovative suit. Technology does not add, it multiplies, he wrote.
What did investors gain in the last bubble?
It would be interesting to hear Graham’s updated thoughts. Unfortunately, he has not yet responded to my email. So, to spark discussion, here are five things I think the latest bubble got right, based on interviews with investors and entrepreneurs. FT readers will no doubt have better or worse ideas.
First, the stock market has been right to place enormous value on data, even if accountants struggle to recognize it on a balance sheet. Those companies that can collect, process and use meaningful data have a significant competitive advantage in almost all markets.
Second, while globalization may be slowing down, electronic globalization is accelerating. The Evaluation of the International Telecommunication Union4.9 billion people—or 63 percent of the world’s population—will be connected to the Internet by 2021. It is planned to reach 100 percent by 2030. People are not only using the Internet more and more often, but also becoming available on it. A teenage programmer in a bedroom in Tallinn, Lagos or Jakarta can reach a global audience overnight.
Third, the Covid pandemic has changed the world of work forever. Stock market investors may have been hit by a sugar rush through excessive betting on lockout favorites like Netflix, Spotify, Peloton and Zoom. But many companies will never be able to get valuable employees to return to the office. So-called liquid businesses that successfully hire and manage employees around the world will thrive, as will companies that serve this decentralized workforce.
Fourth, the energy transition will lead to enormous stock market wealth. Tesla may have become the most hyped, if not overrated, company on the planet. But by spearheading the electric car revolution, it nonetheless symbolizes an important trend.
Fifth, the evangelists promoting cryptography and Web 3 may not have been able to provide many answers yet, but they are asking the right questions. How do we own and trade digital assets? “Blockchain is a game changer. He is going to restructure the back office of the world,” says one of the bank’s managers.
This year’s cyclical downturn in public and private technology markets is disrupting these secular trends. But in the last few weeks investors warmed up again to the attractions of fast-growing technology companies. One example is Figma, a collaborative software that just agreed a stunning $20 billion takeover bid from Adobe.
Dylan Field, the 30-year-old co-founder of Figma, tells me that his company was built on the “mega-trends” that are changing the tech sector. About 81 percent of Figma’s active users are now outside the US. Perhaps it has become a cliché to say that “software is eating the world” (using tech investor Marc Andreessen phrase) but it remains true. “People think it’s over. But this is just the beginning,” says Field.
At times, the latest tech bubble has resembled the unintended Ponzi scheme described by Graham 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 to put on them?