16 years after the dot-com boom, it appeared that the ever expanding world of technology had lost its luster. Promising unicorns began to die more quickly than new ones gained ground, and the overall interest in the largest singular market became rather bleak in terms of investment. Even major companies such as Linkedin witnessed a drop of 40% and the lowest price decrease in three years, at the beginning of this year, resulting in further market uncertainty and bearishness from VCs and institutions. However, that may have been temporary.
According to Reuters, tech companies saw $15.3 billion worth of investments in the second quarter of this year. This was a more than 20 percent increase in total investments compared to the first quarter, and 4th highest dollar amount since the year 2000. But what exactly is driving this growth in the face of such recent declines?
- Markets are more stable
Cheap oil and China are largely to blame for a less than exciting first quarter of 2016. The Dow had its worst 4 day percentage loss since the 19th century, and many investments overall slowed significantly. It wasn’t until March that things started looking up, people became more comfortable and concerns about yet another recession were allayed. The Fed added a little comfort as well and decided not raise interest rates as much or as often as planned.
- Investors are more selective
After more than a few burns, investors have become more particular about deciding where their money would perform most optimally. Instead of throwing cash at anything with hype, investors are putting more time into research and overall terms, focusing on quality over quantity. This general skepticism, which some experts have described as anxiety, has resulted in a decrease in the number of deals despite the increase in total investments.
- Valuations are lower
In the first quarter of 2015, 15 companies had entered the coveted unicorn club, in which startups are valued at $1 billion or more. By that same time this year, the number had dropped to 5. While that’s not so exciting for those looking for high valuations which lead to more promising exits, it has helped secure better deals and such rarity is making the companies that do reach this level, more valuable.
Though early this year was upsetting, things are looking up for tech and for investors who love them, understanding the limitlessness of such developments. Things have certainly changed in the world of tech startups, but in many ways, it is creating a better, more rooted market which can result in more longevity than we’ve seen in recent years, as so many startups rose up from nothing only to fall flat.
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