31 Oct 2019 4:07 PM

It would be easy to see WeWork’s very publicised abandoned Initial Public Offering (IPO), and the subsequent fall in value for other high-profile tech IPO’s like Uber and Lyft, as a sign of a new tech bubble resembling the dot.com bubble of 2000.

But I don’t see it like that and think that what we are in fact experiencing is a sort of reverse of the dot-com bubble.

There are some similarities between the dot.com bubble and what we are seeing now.  During the dot.com bubble consumer tech companies eulogised about how they were going to change the world; and had large advertising expenditures. Struggling to achieve profitability they then started to run out of cash. Some of tech-related companies seeking IPO’s this year have looked very similar.

The difference is that when the dot.com bubble burst after 6 years it happened after hugely successful IPO’s where the share prices of tech companies skyrocketed despite the companies being unprofitable and making massive losses. After it burst there were some high-profile failures, such as Pets.com, and huge share price falls of 80% or more for many technology companies.

Today’s unprofitable tech companies are being scrutinised by the market and are seeing their share price valuations fall on, shortly after, or even before their IPO. WeWork’s valuation fell more than 80% pre-IPO when investors saw its filings and were put off by mounting losses and significant liabilities.

What we are seeing today is an acute assessment by investors, institutions, and the public markets of the need for companies to have a path to profitability and to make real assessments of the financial position and futures of companies that are being backed by large private investors.

But there’s a twist in the tail, tech businesses that sell software or cloud services to the b2b market have been successful in their IPOs (CrowdStrike, Zscaler, Cloudflare). You see these are ‘true’ software companies servicing businesses, not consumers, rather than Uber and Lyft, or WeWork (which is really a property company in tech clothing) which target the consumer market.

So, while consumer tech companies grab most of the media attention, it is business technology companies that grab most of the profit. The biggest example? Amazon; a dominant retailer that makes two-thirds of its profit from Amazon Web Services (AWS), Amazon’s cloud-computing platform.

Greg advises a number of growing tech businesses, two of which have recently sold at a premium to private equity investors.