Shattered. I'm strong but easily broken.

Shattered. I’m strong but easily broken.

I’ve always been fascinated with market trends and finances. My favorite topic is the dot com bubble saga which occurred at the turn of the millennium. That’s about 15 years ago.

First, a little context.

The dot com era refers to the period between 1998 and 2001, when internet-based companies grew at a staggering rate. It was facilitated by explosive growth of internet access and an organic fusion of technology with people’s daily routines.

This created fascinating new business models (at the time) which resulted in crazy valuations for a lot of startups. The popularity of some of these services/websites meant new avenues for advertisers. In short, the tech scene was under pressure to deliver outstanding returns, which led to the metaphorical “burst”. That burst began in 2000, when stock values crumbled, startups died and many investors lost money.

If all these sound familiar, it’s because it is. Right now, the tech space is arguably in the same situation it was right before the dot com bubble “burst”. Even the African tech scene, though behind the curve, is also inching towards this conducive environment for a burst.

I’m just hoping people haven’t forgotten their history lessons, especially entrepreneurs and investors in the tech scene.

Back then, a lot of startups got bloated valuations despite the fact that they were yet to turn profits. We’ve seen this happen again, as companies like Amazon and Facebook, arguably got overvalued when they filed for IPO. And like my business journalism teacher taught me, you can’t fight market forces. Facebook’s initial stock price fell steadily in its first three months from $38 till it hit the sub-$20 region. Fortunately, It gradually turned and rose, currently trading near the $60 mark.

But Facebook got lucky. Very lucky.

And it still points to the fundamental problem and danger the tech scene currently faces.

Investors are actively looking for the next unicorn, in Africa and elsewhere (which is reflecting in the size of the funding “startups of interest” receive). Venture Capitalists have not been this active since, you guessed it, the late 90s during the dot com bubble. That eagerness may just be the current tech scene’s undoing.

For anyone who watched the tech scene, in the late 90s and now, you can see the similarities. And maybe the warning signs.

Photo Credit: See-ming Lee 李思明 SML via Compfight cc

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