The pandemic has unleashed “the second dot-com boom”. Regular people should be investing in the next Amazon or Tesla, otherwise the post-pandemic world will be a more unequal one, and more dominated by China.
Elon Musk’s wealth sky-rocketed from $27 billion in early January to more than $170 billion today. Jeff Bezos’ wealth took a similar turn, and increased by $86 billion. With the exponential growth of the digital economy throughout the pandemic, we need to prioritise investment in e-commerce and tech businesses if we want to innovate, prosper and remain competitive in an increasingly crowded global marketplace. It is easier to raise money for a start-up, or find investment opportunities, in Shenzhen or Shanghai than it is in San Francisco or London. This needs to change.
The technologies that will shape the next century and decide on its winners and losers – Big Data, machine learning and AI – are all in their commercial infancy, with huge upsides in terms of wealth and soft power. 2020 was a record-breaking year of new business creation in the UK, with 12.3 per cent more businesses started than in 2019. US figures are similar. But these businesses will not thrive if they are starved of cash. Investors should see in digital start-ups a happy medium between high risk-high reward crypto investments and low risk-low (or almost no) reward savings accounts.
The opportunity is huge, with the pandemic’s “digital dividend” unleashing a wave of entrepreneurship that is offsetting last year’s redundancies and bankruptcies. YouTube provides a faster and more flexible digital business education than any university, and e-commerce setup is more affordable than retail rents.
The market for these businesses is growing, with 4.66 billion active internet users worldwide, and even remote rural communities now benefiting from internet penetration.
We cannot let this opportunity pass us by, and hand the future economy to China. Many investors still have painful memories of the last dot-com crash. There is also an assumption that the “big money” online has already been made by Facebook, Amazon et al, and that their borderline monopolies will keep it that way.
But that ignores the unprecedented – and perhaps unforeseen – growth areas. This is most notable in the health sector, with 20 per cent of European digital healthcare start-ups emerging in the first few months of the pandemic. In the US, digital healthcare start-ups raised an all-time high of over $6.7 billion in the first quarter of 2021.
The pandemic has similarly generated a whole new interest in education technology. In the US, Edtech start-ups raised $1.78 billion in 2020, compared to $1.32 billion in 2019.
These are not the only industries to benefit from this digital boom; online alcohol retailing has grown by 42 per cent, bicycle retailing by 42.5 per cent and online food by 45 per cent.
The upside of these huge opportunities have all too often only been enjoyed by private equity firms and venture capital funds, many of which have seven-figure minimum investment levels and do not have time for the regular, small-time investor.
But as last year’s crypto frenzy and the performance of stocks like GameStop shows, these investors are willing to take risks and act in unison – and their significance should not be underestimated.
Those investors are not going to get excited about 0.1 per cent interest rates, which are not likely to even keep pace with inflation. Similarly, many of them will have been burned by highly speculative crypto trades. They are hungry for a third way which has manageable risk but high reward, and tech and e-commerce investments can provide it.
They are just as eager to invest in the new dot-com boom as start-ups are to receive that funding. This isn’t just about business growth, it is about the West’s competitiveness and global standing.
By 2027, it is expected that the digital economy will account for more than half of China’s GDP and will become the primary driver of the country’s economic growth. In 2018, China overtook the US as the world’s start-up capital, with Chinese start-ups attracting $56 billion compared to the US’s $42 billion.
We cannot ignore the implications of Chinese ascendancy in this space. Whilst in the US, the separation between tech and state is sacrosanct, no such line exists in China. Beijing uses Huawei’s technologies to identify and track minority populations like the Uighurs, and uses companies like TikTok to harvest data from American users.
We need to recognise that we are in a whole new era of digital innovation, digital technology, and, most importantly, digital power – economic, political and cultural. Online businesses are still considered by many to be intangible assets, which keeps the operational and acquisition costs low. In reality though, online businesses are an attractive emerging asset class, with those low costs translating to a lucrative business.
We need people to understand that the right investments in this lucrative area can be high reward and low-to-medium risk, and that as well as enriching them it can improve and strengthen their societies and countries.
Dominic Wells is CEO of Onfolio, a platform to enable investors to profit from online businesses.
