70% of companies going public at present have yet to make a profit. Merrill Lynch
The first tech bubble grew from 1994 bursting in 2000 shattering confidence in the enormous amounts of money being lent to the then new concept of start-ups. Suddenly the large amounts of money that had been washing around was tightened resulting in the collapse of many small tech businesses, big on assets small on income. Which for an industry that really had very little needs - just a computer and good brains - these sudden wacky fit-outs complete with £500 chairs, swimming pools and roller skating receptionists always seemed to the outsider a little risky.
This collapse wasn’t all to do with the decadence and frivolities, bubbles are part of the credit cycle. Continuous waves of easy borrowing and so lots of available money and confidence to a tightening and pulling back of lending, and a less confident market - bulls and bears. Towards the end of the plentiful time, more risky investment is made looking for the holy grail before the creditors tighten their belts bringing back loans and increasing interest rates
In 2000 Lastminute.com was the pinnacle of the bull, getting its IPO flotation through at a very ‘inflated’ rate only for the shares to drop drastically the month after, sadly some of this bloating was to do with Joe public wanting to get in on the action, but instead losing money hand over fist. Of course after that there was a spate of closures and bankruptcies most notably boo.com - which interesting in recent years has resurfaced.
Now is no different, those that have IPO’d in 2019 such as Uber, Lyft, Slack and Pinterest shares dramatically dropped after going public and continue to lose money. Those not yet put their offering on the stock market such as Airbnb are rushing to bring them forward. To me these are showing all the right signs of another crash.
And of course We Work the most recent, lost so much off their share price as they floated, $49 billion ( a little greedy!) to $10bn and with it their Co-Founder and CEO Adam Neumann leaving in a Grazia style expose of parties, private jets and errrr tigers!
Have we learnt anything from 20 years ago?
The ones that have survived the FANG - most popular and best performing tech stocks Facebook ( IPO’d at $104 billion, the biggest in history) Amazon, Netflix and Google, not to forget Ebay - have changed the way the world works; business, social, communication, thinking, shopping, advertising, eating, living. Did they learn from the first bubble, for sure the infrastructure added in that time was a bonus.
But Tesla, Netflix, Snapchat and many more are still hemorrhaging money, will they survive? And what will happen if the bottom falls out of the tech industry. In my mind it will make it stronger. Personally I am not happy about all these giants who, quite frankly don't seem to need to make a profit. Yes the venture capitalists are looking for that one unicorn that will turn into the next FANG - but most are just blowing money into a sinking ship - imagine if all us lowly companies could work in that way.
This bubble is fueled by the fact it is no longer ok to be a small start-up you need to aim to be the big unicorn, so companies are growing faster quicker, at greater loss of money but still growing in value. VC’s are getting bigger and able to bid bigger bucks all wanting that unicorn, but I think the writing is on the wall.
Is Wework the 2020 lastminute.com - the beginning of the end? And will it restore the status quo. From the ashes stronger, more knowledgeable Phoenix’s arise to start the cycle again.
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Abi Fawcus is a freelance UX Consultant, Website Designer, Logo Designer and Graphic Designer based in Woodbridge, Suffolk. Contact me for more information.