They had no idea the party was over.
Ten years ago this month, the Nasdaq stock market index hit an all-time high of 5,048.62. Euphoric investors of all stripes, from Wall Street titans to novice retirees, had poured hundreds of billions of dollars into dreams that an unstoppable force of technological innovation was changing everything.
However, the combination of exuberance, ignorance and greed that sent technology stocks to impossibly high valuations was slowly breaking down.
Nobody knew the scale of destruction of wealth that would ensue. A decade after the March, 2000 high, the tech-heavy Nasdaq benchmark remains 55 per cent off its dizzying peak.
The tech meltdown weighs on the sector to this day.
The fallout forced a maturing of the industry. Companies have clamped down on spending, investors demand growing revenue and profits, and financiers have become highly selective about putting money into young companies and new ideas.
Today's challenging environment is particularly demanding in Canada, where entrepreneurs and others say the venture capital model for funding innovation is broken. With former giants such as Nortel Networks either failed, sold or faded away, Canada's tech sector is struggling to create the next Research in Motion.
"When I look at the future of this country, I am deeply concerned, from an industrial policy perspective," says John Ruffolo, who heads the technology, media and telecommunications practice in Canada for Deloitte & Touche LLP.
"I think that particularly now in the 21st century, with the rise of some major economies, like China, India and Brazil, every country is a competitor to you from day one. Canada needs to rethink the future of this country," Mr. Ruffolo says.
Last year, Canadian venture capitalists raised $995-million, just short of the $1-billion raised in 2008.
This represents the lowest level since before the dot-com era, in the mid-1990s. Part of the reason is the poor returns they have delivered over the past decade.
Where's the funding?
Private venture capital posted a 3.9 per cent loss over the 10 years ended June 30, 2009, according to Canada's Venture Capital & Private Equity Association. In comparison, the 10-year return of the U.S. Venture Capital index was 8.4 per cent.
"There is a shortage of venture capital in the Canadian market, which is narrowing down the deals into the very best," says Rob Chaplinsky, managing director of Bridgescale, a Silicon Valley-based VC firm that has set up an office in Toronto to capitalize on the situation. He has met with some 200 Canadian firms in the past year and invested in at least one, BlueCat Networks, whose technology helps businesses manage Internet protocol networks.
Remember when? A look back at some of The Globe's coverage of the dot-com crash 10 years ago
Funding is both harder for VCs to raise and entrepreneurs to access today, agrees Dave Kroetsch, co-founder and president of Aeryon Labs, a Waterloo-based firm that makes aerial robots for surveillance.
"They want as sure a thing as possible," he says. VCs today like to wait for a market to be proven before making a bet on it, the way Facebook legitimized social networking. "Then everyone wants to invest in the segment. Before, there wasn't that hesitation." On the customer side, purchasers today are also hesitating to invest in something new, even if it offers compelling value, he says.
Over the past three years, Aeryon has relied completely on private money, a large amount of sweat equity and mentoring and support from Communitech, an industry network in Waterloo. The firm is in the process of trying to raise VC funding and has fully bypassed the Canadian market, looking instead at VCs in the northeastern U.S.