Ho John Lee’s Weblog

Silicon Valley is built on optimism and entrepreneurship, but lately, most tech companies can do no good in the eyes of public market investors, who are presently in a mood to sell on no news, bad news, or even good news.

At the same time, private market sentiment toward investing in Web 2.0, online services, and consumer media and publishing appears to be positive.

Barry Ritholtz posted this investor sentiment graph, on which I’ve marked roughly where I think we are for “new web” startups versus public tech companies.

A lot of the problem with public tech company share prices is due to uncertainty about future prospects - a slowing economy, growing competition, increasing costs, and a general cloud of unknowable liability from options accounting issues. The actual businesses are often doing OK or even great, but investor sentiment has shifted, bringing down the share price. See BRCM, RACK, or NVDA for a few examples of what happens when you report a decent quarter without boosting forward guidance. Fewer people are willing to pay a 30 multiple for growth that may never come, or that may never have existed in the first place.

In contrast, there is still a lot of investor love for Web 2.0 startups and other “new” online services. Part of this reflects supply and demand — there are a lot of investable funds around, and it’s hard for a fund to invest a lot of money in small chunks.

There’s still a lot of excitement about the future of Web 2.0 et al, but it’s been feeling overdone for the past few months (”Digg is worth $60M“), without necessarily being over. On the other hand, I still get the impression that people here in Silicon Valley are still somewhere between denial (”It will go back up”) and fear (”What if it doesn’t”) with respect to the medium term prospects for tech stock share prices.

This investor sentiment graph and other graphs of economic cycles can also be found on the forecast page at Now and Futures.

Anyone think we’ve already hit a peak for Web 2.0 investments or a bottom for tech stocks? (I don’t.)

This entry was posted on Sunday, August 6th, 2006 at 2:27 pm and is filed under Business, Finance/Investing, Front Page. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Tags: stock, investing, market, finance, business, cycles, web2.0, vc, startups, siliconvalley