• by Cory Treffiletti , Featured Contributor, November 2, 2022

Everything old is new again, especially in tech stocks, which are dropping like they did in 2000. People are calling out that the tech market has been over-hyped and under-revenue.

I guess it’s not much of a surprise when you really think about it. Tech valuations had once again been going through the roof, driving a new crop of unicorns and paper billionaires. 

And that was just the private investment sector.  Public markets are getting pummeled as well. 

Many businesses were built on a narrative or promise -- and now the markets are looking for great businesses with real leadership, actual revenue, and predictable growth trajectories.

I applaud the change the same way I did back in 1997, 2000 and 2008.  I think a business should be funded and valued based on its actual performance, rather than the possibility of performance many years down the road. 

I’m willing to forgive early-stage companies that promise when they are pre-revenue, but those who fund the companies need to be more measured in their excitement and hold their investments to actual deliverables.  If that means a startup should focus on bootstrapping and self-funding upfront, then that’s OK. 

Meta is down around 75% (depending on when you read this).  Amazon is down.  Alphabet is down.  Microsoft is down.  The most recent week saw some of those and other tech stocks experience a small resurgence, but across the board tech stocks are down dramatically.

This is all eerily familiar, with one big difference.  In 2000, the tech companies were revenue-light, and simply not profitable.  That’s different now, with the public companies’ revenue strong and many indeed profitable. 

In private markets, the valuations are down and more aligned to the opportunity, which makes the investments feel better and more realistic.  In this market you crown fewer unicorns, and you create more tangible opportunity.

This downswing is also distinctive because the economic fundamentals are still strong.  People have jobs.  People are getting raises.  Inflation and supply-chain issues aside, the basic signals of the economy are still good, which confounds people more.  Why is the market performing this way? 

My hypothesis is that a global pandemic is an X factor in the performance of international markets, and the inflated valuations of companies created a growth bubble.  When you let the air out of that bubble, and when you fix the challenges that were created by a global pandemic, you end up with an even stronger, more reliable foundation for growth later.

It’s not dissimilar to what happened in 2000.  The companies that didn’t survive that downturn suffered from issues concerning the stability of their revenue models.  The companies who did survive did so because they trimmed the excess and focused their growth in areas where they had traction, revenue and an opportunity for profitability.

This economic situation is similar.  It can refocus a team's attention on measurable results and remove the distraction created by outside investors or external economic signals.  It also forces a company to look at the cash they have on hand and ensure they are focused on the length of time they have for that cash before they create a profitable business that allows them to own their own future.

As painful as these situations are, they present the chance to reset. Hopefully this mirrors what happened in 1997, 2000, and 2008.