In life after the bubble, tech takes a backseat

Five years ago Thursday, a pin pricked the Internet bubble.

And in that five-year span, the tech-heavy Nasdaq has fallen by more than half, corporate America has pulled back its IT spending, a large swath of jobs have been cut across a number of industry sectors, consumer confidence has waned, and the tech sector, which garnered the biggest benefit during the go-go years, has suffered a black eye.

"It took 86 years for the Red Sox to win the World Series. It may take a little less for the Nasdaq to hit 5,000 again," said Richard Peterson, chief market strategist at Thomson Financial.

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What's new:
The dot-com bubble burst five years ago. But tech financiers have learned some lessons since then.

Bottom line:
Venture capitalists are focusing more on profits and less on market growth. But while the IPO market has returned, it's not necessarily ready for tech.

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Those in the tech-financing community have learned some lessons in the last five years. Venture capitalists are placing a greater emphasis on investing in more mature companies than in early-stage start-ups. And investment bankers are floating out largely old-economy companies as initial public offerings.

What makes a bubble?
A bubble is not defined by its financial size, nor is it a case of rapidly rising share prices due to irrational exuberance, said Carl Haacke, a White House economic-policy adviser during the Clinton administration.

He defines a bubble as quickly rising stock prices that are not sustainable. Those stock prices are fueled by a cascade of bad investment decisions and encompassed by competitive pressures by the companies in that industry.

Venture capitalists, who now acknowledge that they contributed to the feeding frenzy of the Internet bubble, say they've learned their lesson and have returned to the practice of funding companies that not only have an enticing idea, but they also carry a strong business plan. Profitability prospects carry more weight these days than revenue and market growth.

In part, that has played a role in the way VCs now fund companies.

"It took 86 years for the Red Sox to win the World Series. It may take a little less for the Nasdaq to hit 5,000 again."

--Richard Peterson, chief market strategist, Thomson Financial

Historically, venture capital firms allocated a third of their funds to invest in new companies, with the remainder going to more mature companies. But last year, the slice of funding to early-stage companies accounted for only a fifth of investments, said Adam Reinebach, vice president of research firm Thomson Venture Economics.

"VCs are now being criticized for not doing enough early-stage deals and spending a larger share of their money on later-stage investments," Reinebach said. "Some people are saying they're getting away from what made them great. But the VCs say its just responsible investing."

Although the composition of the funding pie has changed, the

Venture Capitalists have learned their lesson?

Your article "Life after the bubble.." states that VC's have learned from their experiences. My own experience suggests that they are more cautious to validate the truth behind any claim, that they require much more to even consider an investment, and do want a plan for profit and liquidity. What they haven't lost is their desire for unrealistic returns, the kind of returns that are very rarely achieved in the timeframes required. Consequently, they force unrealistic forecasts and pie-in-the-sky promises. The result is that few deals are ever done, and many very good ideas and contributions die from a starvation of capital. Part of the burst was due to the same expectations and behavior.

[Prndll]

lol.....

The so-called "bubble burst" was nothing more than idiots leading idiots. The truth is that only an idiot would buy a pair of jeans online.

LOL....
With the security mess that exists today, it would be a very big mistake to wage huge dollars on wether or not large scales of people are going to buy online. I know that more and more are, but each and every time for everyone is not only another oppertunity for ID theft, but theft directly out of people bank accounts.

Until some of the larger security issues are resolved, this kinda thing needs to be just put on hold. There just simply is too much risk on behalf of ordinary people and too many people that know too little or nothing at all about how and why computers do what they do.

I just wonder if any of these investment firms understand any of this???