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(This article is under construction – come back soon!) The second half of the 1990s marked the sudden rise of a new sort of economy, one in which stock markets experienced high growth rates under the influence of venture capital and IPO-funded companies in the Internet sector and related fields.
At its peak, even companies which had never made any revenue were pushed onto the stock exchange and were trading at extremely high values when one looked at the bottom lines of these companies—which were extremely negative in most cases.
As early as 1996, Alan Greenspan, the chairman of the Fed at the time, warned against ‘irrational exuberance,’ where rational investing was replaced by momentum investing.
This was rationalized by a so-called ‘dot-com theory’: for an internet company to survive and grow, it depended on rapid expansion of its customer base, which in most cases meant huge initial losses.
That there is some truth in this is proven by Google and Amazon, two hugely successful companies in 2012, but it took them both several years before they showed any kind of profit.
This German hacker became a multi-millionaire by launching various internet companies in the 1990s and eventually changed his name to ‘Kim Dotcom’ as a wink to the Dot-com Economy which had made him rich.
He famously sold 80% of his shares in Data Protect, a company he founded that provided data protection services, to TÜV Rheinland in early 2000, right before the collapse of the new economy.
Less than a year later, Data Protect went bankrupt.
In the 1990s he was already the central figure in a number of convictions for insider trading and embezzlement related to his technology ventures.
The history of this global network of computers traces back to early research activities in the 1960s, but it wasn’t until the creation of the World Wide Web in the 1990s that large scale adoption and commercialization started to catch on (Internet, 2012).
Once it became clear to investors and speculators that the internet had created a wholly new and untapped international market, IPOs of internet companies started to follow each other in rapid succession.