Funding problems after the dotcom bubble

After the dotcom bubble burst, the dreams started to be taken out of the valuations for the intangibles added to e-business company accounts. New regulations curbed many of the accountancy tricks. The huge numbers of failures gave an indication of the true risks involved; these were seen to be unacceptably high.

Investors became more sceptical and started to look for real evidence of income and profit. Brokers, fearful for their reputations, stopped bolstering claims and glossing over practical realities: reducing the attractiveness of market offerings. This drastically reduced the number of IPO (initial public offering) opportunities.

Without a large pool of gullible investors and with much stricter conditions being placed upon hi-tech companies coming to market, the venture capital companies ran out of steam. Profitable situations were much harder to come by, more expensive and extensive expert analysis work had to be carried out. With the costs rising and the profit opportunities reducing, the boom times for the capital venture companies was over.

In short, the investing public became disenchanted with dotcom companies when the risks were fully exposed; opportunities for funding were much reduced and, where capital was available, it came only after much closer examination and more stringent conditions

In the wake of the dotcom boom and the drying up of indiscriminate funding, many e-businesses were left floundering. Whereas in the boom times companies could rely on going to the market for new funding whenever they run out of funds, this source dried up as the market became increasingly sceptical of companies that were not showing a trading profit.

With the hazards of speculative risk capital exposed, investors became cautious and started to look at fundamental values such as real assets and actual income and profits. Potential startups stared to find it hard, if not impossible, to raise venture capital and many market flotations were postponed or abandoned altogether.

It is in this post dotcom boom environment that I now have to consider creating an e-business to serve as an example to include in this book.