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Tech Stock Crash: End Of The Bubble?

Tech Bubble Crash

First Posted: 08/08/11 05:25 PM ET Updated: 10/08/11 06:12 AM ET

As the stock market continued a sharp slide on Monday, technology companies found themselves hammered particularly hard, with the Dow Jones U.S. Tech Index ending the day down 5.8 percent. For entrepreneurs and investors alike, the drop begged the question: Is this the beginning of the end of Tech Bubble 2.0?

In particular, high-profile tech darlings saw significant declines in their stock prices: Pandora shares were down below their IPO price, while LinkedIn stock fell 17 percent. Faced with this, industry analysts were united in an assessment that the crash would have a negative impact on upcoming IPOs.

Howard Lindzon, the CEO of StockTwits, told HuffPost, "This definitely hurts IPO prospects -- it's harder to get deals done when people are cranky. They are the first thing to be pulled."

And delayed IPOs would have a ripple effect, according to John Frankel, a partner at ff Venture Capital. "If there are delays in IPOs, companies cannot go public," he said in an interview with HuffPost. "Meaning VCs are going to be returning money a little slower to their LPs [limited partners]."

Mark G. Heesen, president of the National Venture Capital Association, told HuffPost that the market volatility might impact the venture capital industry in a number of ways. "Investors will flock to more conservative fields in uncertain periods," he said. Given the "50-plus venture-backed companies now in IPO registration," whose future is now in doubt, Heesen said, "none of this is good news and we will need to see a stabilization very quickly if we want to avoid long-term implications."

Frankel, for his part, felt that in the long run, the crash would not dampen the investment scene. "In the longer term, I don’t think it disrupts me one iota," he said. "I'm still having meetings with companies, I'm still putting up funds. " Any downturn would have to persist for several months, he explained, to have a tangible adverse effect on the startup landscape.

Lindzon called the market slide a "necessary correction," but rebuffed assertions that it signaled the bursting of any bubble. "Prices were getting a little silly," he said. "But it wasn’t a bubble -- no one owns these [companies]."

Russell Hancock, the president and CEO of Joint Venture, an industry coalition, spoke with HuffPost regarding the prospects of a second bubble. He noted that the "hype and excess" of the late-'90s bubble was "not the case this time. Companies are behaving prudently, bringing genuine product and value -- and investors recognize it."

If anything, he added, "tech stocks have been victimized" in the current slide. "They're being pulled in. But [the sector] is as strong as it ever has been."

To some degree, analysts attributed the steep decline in tech stocks to the nature of the market in general. "Stocks always fall faster than they go up," said Lindzon. "The fundamentals of tech leaders are better than ever -- and those that are suffering have oodles of cash" -- giving them strength in an uncertain market.

For nervous entrepreneurs and jittery startups, Foundry Group's managing director Brad Feld made what he termed a "public service announcement" on his website over the weekend.

"Ignore the Dow and the stock market and get back to work on your business,” he wrote. "Over time, I’ve learned that none of the short term moves in the stock market matter at all in my life."

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