Financial Planning & Wealth Management

Stories from the 90s: Lessons from the Dot-Com Era

I was in Cape Town again last week. I took the scenic route back to Knysna after spending time with an old university friend in Paarl. Instead of the usual N2 drive, I went via the N1 through the Huguenot Tunnel, crossed the R60 through Robertson, and eventually rejoined the N2 near Swellendam.

Pic: Just outside of Robertson

 

I listened to a great podcast called “How I Built This” with Guy Raz, who was interviewing Jeff Lawson, the founder of Twilio, a cloud communications company. Today, Twilio is a $9 billion business, but what caught my attention wasn’t how Twilio was built—it was Lawson’s story about his first venture during the dot-com bubble of the late 1990s.

 

The late ‘90s were wild. The internet was this brand-new thing that everyone thought was going to change the world—and it has, of course— just not in the way people thought it would. It also took a lot longer for internet businesses to find their feet.

 

Lawson’s first company, Notes4Free.com, was a simple idea. At the University of Michigan, he and his friends noticed that students were sharing lecture notes by photocopying them at local copy shops. So, why not put those notes online and let students download them for free? The plan was to run ads on the website—pretty standard stuff for the time.

 

But here’s where it gets crazy. In 1997, just the fact that they had a website was enough to attract investors. Big businesses had no clue how to build websites back then, and anyone with a little know-how was considered ahead of the game. So, at 19 years old, Lawson and his friends raised $1 million from friends and family. No real business model, just an idea and a lot of excitement about the future of the internet.

 

By 1998, the hype was at a fever pitch. It wasn’t just tech investors getting in on the action—doctors, lawyers, and business owners were all being told, “You need to invest in the internet.” Lawson and his team raised another $11 million, pushing their total funding to over $12 million (roughly R400 million in today’s terms). And still, no revenue to speak of—just clicks and pageviews.

 

They used this to open an office in Silicon Valley, and expanded their offering from 10 university campuses to 200. The content was still free, and no one seemed concerned about making money. As Lawson puts it, “The whole conversation was about eyeballs, not revenue.” In the entire lifetime of the company, they generated a grand total of $26,000 in revenue. 

 

Within a year of moving out to Silicon Valley, they got an acquisition offer from a rival company for $30 million. It was an all-stock deal, and the plan was to take the combined company public for a few hundred million dollars. Everything was looking up—until it wasn’t.

 

In April 2000, just as they were preparing for the IPO, the dot-com bubble burst. The stock market collapsed, and by August, Lawson’s company was bankrupt. In a matter of months, the $30 million valuation vanished into thin air. Friends, family, and investors lost everything.

 

It’s a fascinating story. 

 

I’ve seen some commentators comparing the high prices of todays tech giants to the pricing in the stock market back then. But I think it’s totally different.

 

Back then, revenue didn’t matter. 

 

Today’s tech giants—companies like Apple and Microsoft—are a world away from that dot-com era madness. Apple made $86 billion last quarter alone, and Microsoft pulled in $63 billion. These companies are cash machines, with strong margins and real profits. Over the last two decades, the biggest tech companies have gotten bigger and more profitable, and there’s no sign of that trend slowing down.

 

 

As investors, we don’t need to chase trends or get swept up in the latest craze. Investing doesn’t have to be complicated. It’s about owning good companies, getting your asset allocation right, and not chasing the next hype cycle. After all, simplicity tends to outperform in the long run.

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About

 MattFin is a blog that focuses on wealth management, investments, financial markets and investor psychology. I build financial plans and portfolios for families and individuals

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