Entrepreneurs and tech experts claim tech sector is not in another bubble

The technology sector is not repeating its late-nineties bubble and London's ecosystem can go on booming, a panel of experts agreed at a debate hosted by Internet World in London this week.

During the last dot com bubble, between 1997 and 2000, stock markets in developed nations saw a rapid inflation in valuations in conjunction with growth in the internet sector, only to watch it come crashing back down at the turn of the Millenium.

Over the last year, a number of UK technology and internet companies have seen their valuations rocket after raising substantial sums of money on stock markets around the world, just as their predecessor's did in the 90s.

For example, Candy Crush creator King.com raised $500 million on the New York Stock Exchange, while online food delivery service Just-Eat.com raised over £100 million on the London Stock Exchange. Both companies, not strictly "tech" firms in the strictist sense of the word, are today valued at over a billion pounds.

But panel member Julie Langley, partner at technology business advisor Results International, claimed the latest valuations are justified.

“When you see these numbers in the papers, what you have to understand is that these valuations are always rational, not like in 1999," she said.

“If you look at the late 90s, many businesses were going public after three or four years of operation. Now, a business will typically have been established for seven or eight years before they consider going public. At the moment, there is certainly no bubble in the IPO market.”

However, Richard Holway, chairman at analyst house TechMarketView, who was not on the panel, takes a more nuanced view.

"There is a 'bubble' in a small number of 'frothy' stocks like Blur, Outsourcery and Wandisco," he told Techworld, adding that their share prices have been extremely volatile.

But unlike the last bubble, Holway said the 'froth' has not infected the vast majority of tech companies, which remain fairly valued and within established metrics.

According to panel member and former Channel 4 technology correspondent Benjamin Cohen, today's investors are harder to hoodwink than they used to be.

“It was easier to raise money with a product that wasn’t so good in the 90s,” he said. “We are much wiser [today]. The internet is more established and we can better recognise a good product that is likely to succeed.”


The panel was generally positive about the development of London's tech ecosystem, which has been driven with the help of the Tech City UK PR-machine.

Jamie True, founder of fintech start-up Monitise Create, said: "The interesting thing about London is that there is a real confidence. People feel they can start a business here, as there is a market and there is investment."

Meanwhile, Tom Leathes, co-founder and CEO of online travel website top10.com, said: "The funding situation in London is much better than it was three or four years ago. There are more active angel investors and we’re seeing some really big deals from VCs like Index, Balderton and Accel Partners."

However, Langley pointed out that companies across Europe are losing out to their US counterparts because of a funding gap.

US vs. UK

"In Europe, there is more focus on getting the best product and the best technology - but they’re not pushing as hard on sales and marketing," she said. "A lot of this comes down to the ability to raise funding," she said. "In the US, these companies can raise $60 million or $70 million - whereas in Europe, it’s more like $6 million or $7 million. This is a big challenge as it is holding European businesses back.”

Back in the 90s, a combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics, such as price-earnings ratio, in favour of basing confidence on technological advancements.

When the bubble burst, some companies, such as Pets.com, failed completely, while others such as Lastminute.com survived. Established, more traditional tech companies such as Cisco, lost a large portion of their market capitalisation but managed to remain stable and profitable.

This story, "Entrepreneurs and tech experts claim tech sector is not in another bubble" was originally published by Techworld.com.

Copyright © 2014 IDG Communications, Inc.

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