• Titanbay

Why the white-hot VC market is nothing like the dotcom-era boom and bust

A global surge in start-up funding has prompted some commentators to draw comparisons with the dotcom boom and bust at the turn of this century. A cursory glance at the numbers does hint at some parallels. Investments in the venture capital sector hit a fresh record in 2021, with almost $330 billion of transactions closed in the US alone, underscoring the frenzied appetite for deals. Meanwhile, the number of start-ups that were profitable at their time of listing over the past four years was roughly as low as in the run up to the dotcom crash (roughly no more than a third of newly listed companies were profitable).

Zoom in closer, however, and things are very different this time round. Start-up financing has evolved significantly over the past two decades. In the dotcom bubble there was a much shorter runway for going public. Now, start-ups remain private for much longer. Tech start-ups, for example, are on average more than a decade old when they finally list. That means they tend to raise more capital via much larger financing rounds, delaying the need to go public.

Another reason things are different this time round is that the VC industry has changed geographically. European funds now perform in line with their US peers. Innovation is also flourishing around the world, with VCs eyeing start-up investment opportunities in Asia, Latin America and Africa.

The tech-race that is unfolding globally means the need for VC funding to fuel innovation is unlikely to slow down, and has the potential to deliver significant financial returns. The spill-over effects from new technologies that improve peoples’ lives mean that everyone benefits. And unlike in the dotcom era, there is a much wider user-base for that innovation. For example, more than eight in every 10 adults globally now have access to a smartphone.

At the same time, the VC ecosystem has also become more robust. Corporations are taking more active roles in innovation, not just by acquiring start-ups but also to finance and nurture new companies.

Finally, more varied exit routes mean VCs are not just limited to public listings when they want to cash out. Leveraged buyouts, for instance, now make up almost a third of exits compared to roughly one in 10 back in 2006.

All of that means that while there may be shadows of the dotcom crisis poking through in the data, the story this time is completely different—the VC industry has matured, the innovation backdrop is more developed and the opportunities are more global in nature.


If you found this article interesting, and haven't already signed up to receive

content from Titanbay, please subscribe below.



[1] https://www.whitehouse.gov/wp-content/uploads/2022/02/Capstone-Report-Biden.pdf

[2] https://www.fao.org/worldfoodsituation/foodpricesindex/en/

[3] https://www.imf.org/en/About/FAQ/russia-ukraine

[4] https://www.morganstanley.com/im/en-sg/institutional-investor/insights/articles/post-crisis-private-markets-investing.html



The views, opinions and estimates expressed herein constitute personal judgments of certain members of the Titanbay Ltd. (Titanbay) team based on current market conditions and are subject to change without notice. This information in no way constitutes Titanbay research and should not be treated as such. Titanbay does not make investment recommendations, and no communication, including this document, should be construed as a recommendation for any security offered on or off the Titanbay investment platform. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production.

This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, investors should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment in private placements involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance is not indicative of future results. Non-affiliated entities mentioned are for informational purposes only and should not be construed as an endorsement or sponsorship of Titanbay.

Investments in private placements, and private equity investments via feeder funds in particular (such as through the Feeder), are speculative in nature and involve a high degree of risk. The value of an investment may go down as well as up, and investors may not get back their money originally invested. Investors who cannot afford to lose their entire investment should not invest. Past performance is not indicative of future performance. Please refer to the respective fund documentation for details about potential risks, charges and expenses. Prospective investors should carefully analyse the risk warnings and disclosures for the respective fund or investment vehicle set out therein. For private equity investments via feeder funds, investors will typically receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investments in private equity are highly illiquid and those investors who cannot hold an investment for the long term (at least 10 years) should not invest. The external Alternative Investment Fund Manager is Avega Capital Management S.A., a public limited company (société anonyme) formed under the laws of Luxembourg, with registered office at 2, rue Edward Steichen, L-2540 Luxembourg, Grand Duchy of Luxembourg, and registered with the RCS under number B 246.691.

The representative in Switzerland is ARM Swiss Representatives SA, Route de Cité-Ouest 2, 1196 Gland, Switzerland. The paying agent in Switzerland is Banque Cantonale de Genève, 17 quai de l’Ile, Geneva, Switzerland. The Prospectus, the Articles of Association and annual financial statements can be obtained free of charge from the representative in Switzerland. The place of performance and jurisdiction is the registered office of the representative in Switzerland with regards to the Shares distributed in and from Switzerland. Titanbay is an Appointed Representative of Brooklands Fund Management Limited which is authorised and regulated by the Financial Conduct Authority with firm reference number 757575.