Noise & Tech Stocks

Noise and Technology Stocks

By Roy D. Follendore III

March 17, 2001

The rubber chicken investment capital dinners seemed to explode on the scene. For a fee, a small startup company officer could attend along with several hundred others to hear how the beautiful and intelligent people were getting millions. The investors also got to show how important and smart they were too.

The way that things usually went were predictable. The key speakers would usually be some skinny kid Bill Gates look-alike that would be prompted to say anything and everything everyone wanted to hear.

"Our market is trillions, our projected share of the market is modest so we think that our new dot com will have revenues in the billions in just two years, in spite of the fact that there will be no revenue. In other words we will overpower our competition in shear volume."

This was obviously all noise, but the funny thing was that no one wanted to hear that. It was mob physiology at it's worst. The investors were good guys in white hat and there was just too much noise for anyone to hear the truth. The noise ruled. The truth was obvious even then. If it is too good to be true then it probably is. Any company that puts someone as inexperienced as that up in front of a crowd to say a good technology company can be put together overnight is selling snake oil.

The truth is that the vast majority of these overnight startup companies had no technical basis on which to exist. They made up the technology or they simply stole their ideas from others. Many of these 'kids' that were put in the public forefront may have had an idea they were being used, but were given a financial opportunity they could not refuse. Many of these companies were obvious fronts by investors established to milk investors when they went on the stock market with their IPO. Apparently no one sill wants to hear about that. The whole situation was an embarrassment.

When the noise was finally removed, many of the investment opportunities with the most funding were shown to be scams based on vapor. The money that was being thrown around was setup by people looking for quick profits with exit strategies. Many times these investment companies were actually attorneys acting as middlemen. These people put into place terms to make money and leave town just like snake oil salesmen of the old days. Corporations with the commitment to deliver products and services and not willing to sell out were shunned because that was simply not part of the formula.

The stock market maintains this curious view of technological solution spaces. There is the implied assumption by investors that good technology gains value and bad technology loses value. There is also the assumption that good technology gets funded and bad technology does not. In the last two years, we have seen this kind of thinking turn into noise and in the long term as we have seen, it has failed investors. It simply is not true.

In the end, is not technology that was being invested in. In the end, the venture capitalist were not white hat investors at all, they were simply opportunists.

The recent downturn in the stock market is a good thing for good technology companies because the noise has been eliminated. The junk is being set aside so that good technology can compete based on functional merits rather than words. For anyone who has invested in a failed technology company you should remember that the true value of technology stocks did not vanish. The noise between you and the opportunity has simply been cleared.

Expect the stock market technology stocks to begin a healthy climb. The reason is that ultimately the economic value of technology is what it will do for mankind. Next time however, you just might want to put some quality time in the research of the true nature of each company's Venture Capital investors, as well as the companies themselves. The truth is out there.

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