The recent downturn in stocks has spooked some investors. Tech IPOs like Zynga are now threatened with delays, and the excitement surrounding the recent IPO window opening has given way to skittishness. It doesn’t help that the Groupon filing has been amended to remove some sketchy accounting constructs, to a chorus of catcalls.
We should remember that something similar happened in the last two tech booms:
- In 1980 after the Apple IPO we had the double-dip recession, and IPOs paused before resuming in a blow-off from 1982-3, which ended with a thud in the sumer of 1983. I remember this clearly as my venture fund at the time had a company go out in June 1983 (Innotron) and then the window shut hard and our next IPO (Digitex) could not get out in July.
- In 1997 after a series of great IPOs in 1995-6 such as Amazon, Yahoo and Netscape, we had another pause as the Asian Flu hit, compounded by Russian debt trouble and the collapse of LTCM, the derivative king. We even had a crash of sorts in the summer of 1998. Yet tech IPOs resumed in the Fall of 1998, sparked by eBay. I had two IPOs, one in 1998 and one in 1999. The Nasdaq doubled from 1998 to 2000. Then it ended with a thud in April 2000.
So it is with markets – two steps forward one step back. It is always such, and that should be considered normal, not a straight-up-and-to-the-right run.
So is it 1997? Or 2000?
We can look back and see pretty clearly when the Social Mobile boom started: Q2 2009. Fenwick & West has a valuation barometer in their quarterly report on venture finance. Their current report, just out, shows eight quarters of growth in values – meaning as of Q3 2009 things were trending up. That pegs the start as of Q2.
Another big tell that this is the turn point is that it came right after the infamous Sequoia Capital “Nuclear Winter” presentation entitled RIP Good Times, telling its portfolio companies to hunker down for a long dark haul. When the leaders of a prior era come out with such statements, it usually means the opposite is about to happen. The most respected US economist of 1929, Irving Fisher, stated that stocks had hit a new plateau of prosperity – right before the 1929 crash. Go back and scan comments from top VCs in 1999 – “this time it is different” is usually said right at tops.
At tops, it will last forever; at bottoms, it will never end. But it does.
It appears this boom has run for two years. The last two (PCs and Dot-Coms) lasted more like 5-7 years depending when people count the start. They both had pauses in the middle. Near the beginning, the pauses caused skittishness and a belief the good times were over. Near the end, the pauses caused shock and belief that it was again a time to “buy the dips.”
Market psychology says we have a ways to go.