When it comes to the technology sector, Innovation is not the only requirement for the advancement in products and processes.

Capital to actually back up the idea and sustain its results is also very essential. But with the very high demand and returns from this sector the companies have plenty of financial support. The smaller companies’ problem for getting finance from venture capital firms due to their size is solved by the very appropriately named business angels. These are wealthy individuals that are ready to back up smaller companies with usually the cash and knowledge they gained in the 1995 boom. Many super angels like Aydin Senkut, a former employee of Google, tend to offer bets that match those of traditional venture capitalists that get their finance from various financial institutions. And at times various angels group up to fund a young firm. Research shows that only in the last year around $20 billion of investment was injected into younger firms that develop software apps or consumer based services from angels, as compared to the $22 billion investment by venture capitalists.

 

The methods of financing the firms that have reached more of a mature stage, like Twitter, have also changed. Instead of going public they continue to be financed by larger venture capital firms like Andreessen Horowitz and Kleiner Perkins Caufield & Byers to maintain their private status and independence. Following the trend started by the Russian company DST (now Mail.ru) and DST Global by investing in projects like Facebook and Groupon for long-term high secured returns, many American hedge funds and private equity firms and investment banks like, Goldman Sachs and JP Morgan Chase are trying to acquire stakes in internet companies. Their work is made even easier due to the rise of the secondary market in America like SharesPost and SecondMarket which allow the convenient trading of private company shares and hence increase values.

 

Big companies with deep pockets are also taking over these younger and more popular companies. An example of this is the takeover of Skype, an internet video and phone service, by Microsoft which according to its boss was an example of Microsoft’s “super- ambition”. The takeover cost Microsoft a massive $8.5 billion which was 400 times that of its revenues in 2010. Which is a justified price as it will aid Microsoft’s other services and products like the Xbox gaming console and windows 7 mobile operating systems.

 

The 2011 position of high levels returns and innovation in the computer and telecom sector might give rise to the fear that this bubble might soon burst as it did in 1999 but the general trend is that in respect of the last bubble we might be a few years short of the bubble bursting, more like still in 1995. The more pessimistic firms might miss out on the chance of extremely high returns if they choose to avoid taking the rick of investing in these companies based on this assumption alone.