Upside today, forever the bull(sh!t)
What burst bubble?
May 16, 2000
There doesn't seem to be a whole lot of good news on the tech investment front these days.
Everybody seems to be under water, and few companies are going public. The one company that did have the guts to test the water recently, Sequoia Software (SQSW), launched May 12 at 10 1/2, peaked just over 12, and was already under water by the close of business Monday.
Venture capitalists are rethinking their strategies and preparing for write-downs. Angels are getting scared and pulling out of new investments altogether. Suddenly, people are listening to Alan Greenspan again before placing their bets on the Stock Market Roulette.
Going, going, gone
A lot of dotcom companies are about to die. Many of them will continue in spirit -- or perhaps just a customer base -- as they are acquired by others. Forget that get-filthy-rich-quick IPO ambition; acquisition strategies are suddenly the best hope in town.
Is this it? Has the bubble finally burst?
I have consulted my source, the Secret Stock Sage, for advice, and his scientific answer to that question is: "No way, dude!"
The bubble hasn't burst; it just lost a little air. Like a day-old helium balloon dragging its tail along the ground, tech stocks can't quite decide whether to rise again or just give it up and drop. Since mid-April, the Nasdaq composite has swung back and forth around 3500, never making it back up to 4,000, but never dropping into the serious danger zone below 3,000, where there are a lot of pricks just waiting to flatten this balloon into a recession.
The dreaded 3000 barrier
If Nasdaq gets below 3,000 again, I will agree that the tech bubble is flatter than an armadillo on a Texas highway. Recession will be here. The value of your portfolio and my house will be seriously hurt.
But I think the Nasdaq composite is much more likely to see 4,000 again first. I don't know when. Maybe next week, maybe next month. But when it does, the psychological barrier will fall, and people will start investing again. In fact, the longer it takes before tech stocks start rallying, the healthier our comeback will be.
The Internet still has a lot of depth to it. We just put too much faith in it, thinking that the rising tide could raise every leaky tech boat on the water. (Are you getting tired of these metaphors yet?) The worst ones will sink; those that can be fixed will be picked up by the Internet supertankers, companies such as AOL (AOL), Yahoo (YHOO), Microsoft (MSFT), Cisco (CSCO) and even AT&T (T). Roger McNamee and the folks at Silver Lake Partners figured out more than a year ago that there are a lot of damaged tech companies that still have a lot to offer the right buyer. And they have raised more than $2 billion to help make it happen.
Only the strong survive
Eventually the tide will come back in, and the race will take up where it left off, with only the strongest competitors remaining.
Perhaps I'm just getting optimistic in my old age, but I still don't think that technology companies as a whole are overvalued. A lot of individual Internet companies were overvalued, but not all of them. I don't know where that invisible line between under- and overvalued is drawn, but it is not where the old price/earnings ratio used to put it.
There are millions of new investors out there. That is simply one of the things the Internet has changed. The law of supply and demand has not been repealed, and the supply of investment capital has risen dramatically.
Since it takes a while to raise a new VC fund, the lousy market has not yet had a chance to curb the cash flow to San Francisco and Palo Alto. Venture capitalists now have more cash sitting in escrow, waiting to find a home than at any other time in history. Softbank Venture Capital just announced that it has closed a $1.5 billion fund. Not too long ago, Kleiner Perkins teamed up with some other VCs to close a $1.6 billion fund.
Money waiting for a home
Next quarter we will see a dramatic decrease in the amount of new funds raised. But a lot of the money in the pipeline is going to be spent. That kind of money brings out a lot of new ideas from entrepreneurs. It's the fuel that feeds the capitalist fires. The VCs are going to be more careful about their placements (at least for a while), investment banks won't be able to take assured losers public, and everyone will benefit.
We aren't done building the Internet yet. There are still some good business ideas that have not been funded. There is still huge growth potential overseas, and even a fair amount here at home, once these geeky programmers learn to actually serve their customers properly. The old order has not yet been replaced by the new. The Webby Awards have not yet reached the stature and prestige of the Academy Awards. The press has not yet exhausted its supply of stock market metaphors.
These are the things that are going to fuel the next stock market rally. Just wait and see. A metaphor is a terrible thing to waste. My colleagues and I will make sure the market for market metaphors rallies again, even if we have to start buying stocks ourselves.
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