Talking Points

We've looked at two companies, one American, one German, that were both part of the dot-com bubble. They are examples of how the system seems to have had a glitch. Instead of investors' financial support providing the basis for the long-term growth of new companies, many ended up bankrupt. Instead of their investments appreciating, many small investors lost large portions of their savings and of their pension assets.

The capital markets serve two purposes: to drive innovation and to support financially successful businesses. The Internet was one means by which money was provided for progress, but much of the money was wasted through this process.

The slow progress of the Internet from its Defense research beginnings to its commercial application illustrates how early development continues to be the domain of government funding and academic and research people; how private capital is, at the beginning, often limited in technological understanding and commercial imagination; how private capital flows in only slowly, and often only when the public has already seen potential and begun to find ways to get access to systems developed by government and research organizations; and how private capital finally jumps in, and with it, excessive enthusiasm about the commercial value of applications of the new technology. Years of disinterest give way almost overnight to wild excitement.

How did this happen? What caused new companies to go awry? Did the companies embody serious business ideas in which responsible people had confidence and worked hard to achieve, but fell down due to good reasons? Or were they screwy notions that never should have been funded, and certainly not sold to retail investors? Were they ideas in which neither the founders nor the investors had confidence, but were simply hyped to make a killing in a public market? If so, who's to blame? Is it likely to happen again? Do we want it to? If not, can it be stopped?

These are among the key questions that this book will answer.