They enjoyed it so much last time, they're blowing a hi-tech bubble all over again

It's only a few years since the great dot-com disaster but already 'cool technology' is back and banging on the doors of the stock market. The new wave of companies claim they won't repeat past mistakes but others aren't so sure. Clayton Hirst reports

The annual report is an exercise in brevity. In just 14 pages, the accounts filed at Companies House reveal that the business didn't achieve a single sale in 12 months and managed to burn £4.4m.

The company behind the report is Newport Networks, a privately owned technology start-up. With no customers or revenues, Newport is betting on an idea. It believes that you and I will soon want to make telephone calls over the internet, so it is developing the kit to allow this to happen.

Backed by technology investor Sir Terry Matthews, Newport announced on Monday that it plans to float on the Alternative Investment Market (AIM) next month. With no financial track record or even a fully finished product, news of the proposed listing carries more than an echo of the late 1990s boom when "cool technology" was more important than profits.

Newport is not alone in wanting to brave the markets. In the past six months, 10 technology companies have listed in London, more than in the previous three years put together. And in the next six months, there are thought to be at least another 10 companies looking to take the plunge, headed by Virgin Mobile which is expected to be valued at more than £1bn. In London, shares on the Techmark have risen 15 per cent over the past six months, and America's Nasdaq market has experienced a solid 6 per cent gain.

"The valuations of technology companies have come back strongly and there is greater investor appetite for technology stocks than at any point in the past three years," says Paul Lewington, a technology analyst at investment bank Close Brothers.

If Newport manages to list with an expected valuation of £35m then it will be a milestone. Of the recent floats, most of the companies have gone out of their way to demonstrate a track record of earnings and growth. Newport has neither and it is exactly the sort of company many investors vowed not to touch after having their fingers burnt when the last bubble burst.

What's more, there is evidence that Newport is coming to the market after some members of the venture capital community rejected it. "We looked at providing funding but didn't go for it because Newport hasn't any customer contracts," says one leading venture capitalist approached by Newport a few months ago.

Microsoft's founder, Bill Gates, warned last month that a "mini-bubble" was being created in the US. In the UK, Richard Holway, a director of research company Ovum who correctly called the top of the last boom, is also worried that the technology market is in danger of overheating.

"On every indication, these technology stocks look too expensive. The valuations can only be justified if earnings growth goes absolutely bananas over the next year," says Mr Holway. He predicts that the current boom could run out of steam by the middle of the year, "when analysts spot that some of the growth predictions are unrealistic. This is a mini-bubble and people should realise that".

Mr Holway expects technology stocks to fall on average by 20 per cent in the second half of the year. If his prediction comes true, it will demonstrate that the companies, investment banks, shareholders and analysts may have learnt the lessons of the last crash - by not allowing the current boom to run out of control.

While technology firms are clamouring to float on the stock market to take advantage of the boom, many of the businesses bear little resemblance to the likes of boo.com and webvan.com in the late 1990s. Mr Lewington at Close Brothers says: "Today the businesses tend to be a lot more solid with greater critical mass and existing profit streams. They have a well-established market position with strong intellectual property. Pricing is also more sensible when related to the fundamentals of the business."

The peak of the last boom was characterised by the arrival of the incubators. These were often start-ups which provided the capital and advice to get other technology firms off the ground. Jellyworks, Antfactory, NewMedia Spark (run by Luke Johnson, who is now chairman of Channel 4) and Cube8 were just some of the names that sprung up, characterised by their young and relatively inexperienced management teams. Simon Freethy, the former chief executive of Illuminator, an incubator which was backed by corporate raiders Brian Myerson and Julian Treger, says: "In 2000 the issue of national insurance on share options came up. I did the rounds of the various companies to discuss it. But I didn't find one person with any venture capital experience."

Mr Freethy, who now runs a corporate finance boutique, adds: "That is one of the reasons why it went wrong because all these people were making the mistakes the VCs made in the '70s."

None of the boom-time incubators survived the technology crash. But now incubators are back, only this time they prefer to be known as "intellectual property commercialisation companies". In October, IP2IPO, which specialises in spinning companies out of universities, floated on AIM. It is now worth £172m. Last month IP2IPO floated its first company, Offshore Hydrocarbon Mapping (OHM), which has a market value of £67m. David Norwood, its chief executive, says: "Everyone seems to be drawing the conclusion that this is the beginning of another bubble. The dot-com companies of the '90s were dreamt up in wine bars and put together in a few weeks with no real management or control of costs. In the '90s, we were all getting excited about new and emerging technology like broadband, but five years later this stuff is starting to happen."

Last month IP2IPO reported a pre-tax loss of £583,000 for the year. But this did not include the £1m it made from floating OHM. Mr Norwood, who in 1999 founded the IndexIT consultancy, admits that the tech firms and investors of today "have to keep pinching themselves" to maintain a sense of reality. "In 1999 we were all talking things up. It was like attending a party we thought would never end. When it did, the hangover lasted three years."

The problem with hangovers is that they are forgotten by the time the next party comes along. The flotation of Newport will perhaps show if the City is ready to let its hair down again.

SIX TELL-TALE SIGNS OF A BUBBLE ECONOMY

Profits

In the technology sector, these become secondary to new and bizarre-sounding concepts. During the dot-com boom, "e-entrepreneurs" talked of a "paradigm shift" where earnings were supplanted by "eyeballs" - the number of people looking at a website. However, the whole thing went horribly wrong when these so-called entrepreneurs realised that the eyeballs weren't spending any money. Investors should also beware of new measures of profit such as "ebitda".

Management

Out go the grey hairs and in come young, inexperienced and often arrogant managers. In early 2000, the most extreme example was myISP, an internet service provider aimed at teenagers. It was run by Simeon Quarrie, who was all of 18 years old. The average age of his management team was 20. The company attracted financial backing and even talked of floating, before fizzling out.

Punters

"Pumping and dumping", "the day trader", "chat rooms", "ramping" - these were all expressions born out of the arrival of the retail investor in the technology market. Dazzled by the soaring valuations of the stocks, the man and woman on the street borrowed thousands of pounds to buy shares in the new economy. But they came in too late and most lost their shirts as boom turned to bust.

Venture capital

"If you are phoning for money then leave your name, number and how much you want. We'll get back to you." According to legend, this was the answerphone message of a US venture capital firm in the late 1990s. Venture capitalists were falling over themselves to back any company with a .com after its name. Due diligence was brisk, and when the market turned sour, many venture capitalists realised their investments were worthless.

Bandwagons

Traditional companies felt left out of the booming new economy so they reinvented themselves. Durlacher was typical: a traditional stockbroking firm turned itself into an internet investor and almost joined the FTSE 100 in the late 1990s. After the bubble burst, Durlacher reinvented itself again - as a traditional stockbroker.

Drama

When boom has turned to bust, look out for the television drama. Attachments was the BBC's attempt at portraying life inside a dot-com start-up. But by the second series most dot coms in the real world had gone bust and the programme instead focused on the characters' attempts at sleeping with each other.

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