The first half of 2014 has been an intense period for start-ups, corporate financiers and sell businesses, as incredible sums of investments have poured into the tech market. With massive valuations of $19 billion for WhatsApp, $17 billion for Uber and a whole array of $100-million-plus acquisitions already notched this year, 2014 is likely to break a number of venture and acquisitions records. Markets, however, are always concerned by irregular activities and many analysts are already calling this explosion of liquidity a potentially major bubble. The tech industry is especially sensitive when it comes to a bubble, with many still harbouring memories of its devastating impact in the early 2000s. However, here are three reasons why we’re not really in a bubble scenario.
1. Much savvier investors
The hit-and-hope tech investors of the 1990s are not as prevalent in today’s much more mature digital space. Statistics, improved consumer relationships, stronger industry governance and greater involvement of traditional financiers are all aspects that ensure equity frenzies are not as random or uninformed as a decade previously. The market spike in acquisitions and financing is part of the greater interconnectivity between various segments. For example, WhatsApp’s valuation seems extreme, but with the maturing of mobile advertising, FinTech and various multimedia add-ons, the potential for returns is much greater than ever before.
2. IPO market much more cynical
The IPO market was a lottery during the turbulent years of the dotcom bubble, with businesses too eager to reach the public even at the risk of complete collapse. Today’s businesses are far more cautious, realising that investors have also become much more hardened and cynical when faced with apparent digital success. King Digital Entertainment served as a strong barometer of the marketplace, entering with hype surrounding its surging mobile gaming businesses but being met by unimpressed investors with an eye on the long-term potential. Stock value swings are also much more stable and less erratic. For example, in the early 2000s Amazon saw its stock price fall from $107 to just $7. Without a hardened business model, the IPO market is less likely to overvalue stock so significantly. Businesses unsure of their public reception today turn to a business transfer agent instead.
3. Digital ideas have practical market implementation
Today’s technologies and ideas have much more practical implementation, reaching a much better connected consumer market and more advanced businesses. Digitalisation is a part of everyday life, with fad trends usually naturally pushed out of the marketplace. While investors still measure potential that might not have reached monetisation (Twitter remains unprofitable still, for example), the number of consumers able to access digital products and service provides a much more stable footing for investments. Surging investment and acquisition activity is reflecting the global digital market, one that is not likely to pop anytime soon.
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