Why You Should Pay No Attention to the Tech Sell-Off
The sell-off in technology shares this week may have you wondering whether other investors have lost their appetite for technology startups.
The short answer: Not by a long shot.
Great companies are immune to the vicissitudes of the stock market, and the sell-off should further support the idea that your time is best spent on business fundamentals, no matter what.
"The best businesses are largely indifferent to these normal variant ups and downs in stock price," says Ross Fubini, a partner specializing in tech startups at Canaan Partners, of Menlo Park, California.
On Thursday, the NASDAQ fell 129 points to 4,054, a 3 percent decrease, and the biggest decline the tech-heavy index has had in three years. Similarly, the Dow Jones Industrial Average fell 266 points to 16,170, a 1.6 percent decrease.
The sell-off continued on Friday, with the Dow shedding an additional 144 points to 16,026, and the NASDAQ losing 55 points to 3,998 in late afternoon trading.
The rocky week follows what has so far been a white-hot year for technology initial public offerings, whose dollar volumes have risen to levels not seen since before the Dotcom bubble burst in 2000. Although many of the companies going public lack profits--Twitter and Box, as just two recent examples, reported hundreds of millions of dollars worth of losses in their Securities and Exchange Commission filings--they are a far cry from many of the hollow IPOs of the 1990s, experts say.
"Today the tech sector is stocked with good companies," says John Backus, founder and managing partner of New Atlantic Ventures. "Even most recent IPOs have solid revenue and business models. What some still lack is earnings."
Backus and Fubini note that there's definitely room for further downward momentum, particularly as investors abandon unprofitable startups in a flight to safety with more established, profitable names.
But they're banking on--and here's where you should pay attention--companies with solid business plans and focus.
"[We] are more focused on the next set of founders who are coming up in the sector," Fubini says. "These entrepreneurs and leaders don't think about the waves in the public markets. They think about the work that needs to get done today to be the next great IPO."