by Mike Masnick

Maybe The Dot Com Bubble Wasn't Such A Bubble After All

from the still-going... dept

We've definitely seen quite a few cases of dot com bubble-era startups coming back to life a decade later -- but a new study is suggesting that for all the talk about the dot com bubble and the resulting burst, there may not really have been a bubble at all. Instead, what the researchers found was that, in a random sample, nearly half of companies that received venture funding in 1999 are still in business today. To them, that suggests that there should have been even more companies funded during the dot com era, because not nearly enough have failed. Of course, you can raise all sorts of questions about this -- including questioning the methodology of the study, and whether or not "number of companies" is truly the important number to be focusing on. You can also question what the "appropriate" percentage should be for failed companies. However, when you hear stories about dot com stars getting more funding years after you figured they were long gone, it certainly suggests that the bursting of the bubble wasn't quite as dramatic as some would have you believe. Of course, if that's the case, it might make you wonder whether the good that comes out of bubbles is really as strong this time around as well.

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  • icon
    Quantum John (profile), 14 May 2007 @ 9:11am

    x times earnings

    Any time valuations are bid up to thousands of times earnings, that's definitely a bubble.

    reply to this | link to this | view in chronology ]

  • identicon
    Elohssa, 14 May 2007 @ 9:22am

    It was psychological.

    I'm no economist, but I was in the Bay Area before and after the pop, and I believe the key thing that changed is that suddenly no one believed that an "Internet" business was a guaranteed path to riches.

    Suddenly, companies were being cautious where before they would have started sending fleets of dump truck loaded with cash. It wasn't as though VC ran away forever, they just became rational again.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 May 2007 @ 9:41am

    If there wasn't a bubble, why don't I still earn my "bubble" salary?

    reply to this | link to this | view in chronology ]

  • identicon
    seth brundle, 14 May 2007 @ 9:50am

    It was never carefully considered

    For those of us who were deeply involved in the dot-com madness, the takeaway has always been much more complex then the media ever suggests.

    The dot-com boom at its core was real, justified, and successful. Its just that half of it was a learning experience which needed to happen.

    I get really pissed when armchair quarterbacks look back and say the dot-com boom was some massive failure of moronity - it nothing of the sort, it was a historically massive upgrade to our society, culture, and economy which had a settling effect just like radio did.

    There are millions of us whose career, education, and standards of living were catapulted by our experience with the dot-com boom, and many of us are involved in quite successful internet ventures today - and thats because we surfed that big wave and are the better off for it.

    reply to this | link to this | view in chronology ]

  • identicon
    Stupid, 14 May 2007 @ 10:46am

    Stupid Stupid Stupid

    Who writes these articles. There was a bubble and it popped. People lost millions.

    Why even write otherwise?

    reply to this | link to this | view in chronology ]

  • identicon
    Brian Hayes, 14 May 2007 @ 11:04am

    Funding failed

    I'm glad Techdirt is examining this period, if only a smidge.

    Referring to the crash of 2001 as the DotBomb era truly skews history and negatively labels too many top notch entrepreneurs.

    It seems to me that the slump began at a very high level, slammed financial sources first, and struck only specific players. I pay attention to the era because I lost my retirement in less than six weeks. It bugs me when the reasons for the mini-crash of 2001 are blamed on so many hard working innovators.

    In the first days of this economic shock, the funding sources crashed. Merchant bankers and investment houses suddenly withdrew their backing from sector investors - quickly and across the board.

    Firms were shut without the time for analysis of their business plans. The valid and the invalid fell equally.

    Certainly later historians and pundits found examples of silly pyramids built on excessive claims to justify the crash, but very few have looked at the reasons why institutional capital was so quickly pulled primarily from the tech sector.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 May 2007 @ 11:36am

    Spin meisters

    No bubble? Get real! Everyone who was in any way involved felt the effects of the collapse. At the same time, the collapse was more a collapse of the unbridled hype and over-investment than of the technology itself. After the bubble burst, the technology remained and grew at a normal pace.
    That these authors are now claiming there was no bubble is typical of 21st century spin doctoring. Everything is whatever we say it is. Fortunately, we are all so inured to it, we just chuckle, write a comment, and move on.

    reply to this | link to this | view in chronology ]

  • identicon
    g, 14 May 2007 @ 11:50am

    Id like to see some more in-depth coverage of this if you guys are interested in the topic.

    From my perspective in the valley during the late boom through today I saw some high profile of companies with poor business models, and lots of others with questionable (as in, maybe they can make money, we'll see), and some strong ones.

    Not having much experience with industry growths outside the tech sector, I dont know how average these figures were. It was fun to talk about the truly silly ones, but that made it harder to judge how many of those there really were.

    reply to this | link to this | view in chronology ]

  • identicon
    John Bailo, 14 May 2007 @ 11:52am

    Capital Starved, Not Rich

    This validates my own long held belief that the problem with High Tech in 1999-2000 was not a "bubble" but capital starvation.

    There should have been more, not less money in high tech.

    One of the antagonists was Allen Greenspan -- he held interest rates way too high, which encouraged people to pull out of stock when they got dizzy.

    NASDAQ will reach and exceed 5000, validating those original investments.

    reply to this | link to this | view in chronology ]

  • identicon
    niftyswell, 14 May 2007 @ 12:04pm

    how is 50% not a bust?

    You are dreaming, if I provided all the funding in the world to several companies. Asked they not squander the $$, develop a good business plan, and stay in business a couple of years an only half make is that not a bust? Most underfunded startup small business make it longer than 5 years without going out of business and rarely does it involve Chapter 11, people not getting their last check, real estate in the business locale tanking, and a negative impact on the economy of the nation. If half of Americans lose their homes in a will be called a bust. If the stock market loses half its value in a year it is called a bust. I think you dot.morons are trying to soften history. Half of an industry going into the toilet in a year is a bust- period.

    reply to this | link to this | view in chronology ]

    • identicon
      vamsi reddy, 14 May 2007 @ 12:15pm

      it might been...

      I think i really missed(was too young to do a job at that time) the good days of dot com boom or bubble what ever it is when people earned 6 digit salaries, I dot see that to happen in next so many years........... Any comments on this ?

      reply to this | link to this | view in chronology ]

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