The Full English – Tech bubble or Tech revolution?

What am I buggering on about this week?

This week we’ve seen Slack join ranks of tech startups on the stock market (1). It’s price surged immediately after listing and remained up, a distinct difference to the Uber IPO in May and the Lyft IPO in March (2). Perhaps due to the state of Uber and Lyft’s respective balance sheets (3, 4). Perhaps due to the methodology of the listing, with Slack following in Spotify’s footsteps in utilising a direct stock listing rather than an IPO. This model means that current investors are allowed to list their stock for sale, but no new stock is offered, and the positive uptake of Slack and Spotify is spurring other companies to consider this model (5, 6).

It’s been a big year for new tech listings, with Pinterest, Zoom, Beyond Meat and Fiverr also coming to the market, and AirBnb, WeWork, Palantir Tech and Peloton all touted to be in the pipeline (7, 8). This is inevitably raising the spectre of the last time we had lots of tech companies listing… the late 90s (9). So what’s to set the current market apart from the dot-com bubble, and what comparisons can we draw (10).

The Similarities

These are fairly obvious:

  • Loss-making tech companies making well over valuation at initial IPO. Promising dot-com companies that make millions going public but never turn a penny profit was a hallmark of the dot-com bubble, and we’ve yet to see Uber or Lyft make money…
  • Linked to the above, 84% of companies going public last year were not turning profits, the highest % since 2000 (11)
  • A market that is (depending on your measure) over-valued (12)
  • Economists are predicting a recession, as they did in fear of the millenium bug
  • Investors are chasing returns through new startups as the traditional markets slow

The Differences

A defining trait of humanity is it’s ability to learn, so you would hope we’ve learnt from the dot-com bubble and won’t repeat the mistakes. Let’s not do a Nathan Barley (a Charlie Brooker masterpiece) (13).

Looking at the recent tech listings there are some differences:

  • The internet is more mature

The internet in the nineties was still a thing of wonder. It’s potential seemed limitless, so valuations naturally followed. It wasn’t yet clear how this could be translated into a money-making machine, and that was a partial cause of the downfall. The internet has matured in the intervening 20 years, and the FAANG stocks in particular have demonstrated how to capitalise on it. They now dominate the market with eye-watering profits. Their growth may be slowing but they’re unlikely to collapse given their hoarded cash reserves (14).

  • Companies funding streams are more complex, but also more transparent and under greater scrutiny

Many of the companies being listed are not the fully VC-backed start-ups of old, selling a fairly unspecific dream. Companies are staying private for longer, with pressure for their finances to be under public scrutiny. Others are utilising P2P/ crowdfunding streams like CrowdCube and Seedrs. You can’t just pitch any old crap with a domain name!

  • Companies are disrupting traditional models (IMO)

Arguable this one, but I think many of the companies that went bust in the dotcom years were basically trying to take a traditional economic model and translate it to an online format with minimal idea on how to gain market presence or be profitable; see and Compare this to the current round of stock offerings.

The global tech revolution

Here’s where I see the real difference. Amazon, Netflix, Google etc are massive global players, making profits around the world. They developed their own markets. AirBnB, Spotify, Slack, Uber etc are all doing or have done the same. Their founders have identified a niche or a gap, and placed a product which is a natural fit. Why else would they become so ubiquitous if they were not so obvious. Improvements in the infrastructure of technology has made this possible, and will continue. Starling and Monzo, which I talked about last week, are also disruptive, but banking still has further to go.

We’ve seen wholesale changes in almost all aspects of our lives. There are apps for pretty much everything you do; shopping, leisure activities, work, investments and loans, sleep, music, etc. What hasn’t changed? Banking and central economics. Governments and central banks still set interest rates, still co-ordinate and oversee financial structures and currencies. Which is where Libra, the new cryptocurrency backed by Visa, Mastercard, PayPal, Uber and Facebook comes in (15).

There’s plenty of arguments against Libra (I’m looking at you Ermine), not least security and the prospect of having Facebook digging through your earnings (16). But it’s backed by lots of major players, and could be truly disruptive. Like all blockchain cryptocurrencies it’s decentralised, beholden to no central bank (17). This has got the regulators in a right tizz; if it’s globally decentralised who can/ would regulate it (18). How will government lobbyists get their greasy mitts on it?!?

The clever move that puts Libra over and above Bitcoin and other blockchain cryptocurrencies (beyond it’s big industry support) is asset-backing (19). Backing with physical assets (probably cash/ bonds, but interestingly also could be equities) removes the wild price swings seen with Bitcoin. If it’s globally backed then you suddenly have a currency which tracks global inflation automatically, can be accepted in any country, and allows you to purchase across borders without incurring currency conversion costs. No wonder Mark Carney reckons it could be ‘systematically important’.

We live in the age of a global economy. Corporations are multinational, straddle borders and look to leverage international differences to increase earnings (moving jobs offshore for lower wages for instance). I don’t think central governments/ banks are about to relinquish their stranglehold on economic policy, but Libra offers a window into a future where this might be the case. Where your earnings are paid in a global currency by a global company, wherever you are. Where geoarbitrage becomes the norm, forcing international parity. Where interest rates on your loan are not set based on a baseline from central government, but by global market inflation, or a combination of your credit score and what a credit union of your Facebook contacts are willing to lend. Governments and global banks (Rothschilds etc) have long held a hegemony on money. Now there’s a chink in their armour.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.



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