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Groupon IPO has some wondering about a bubble

Have investors have been adequately sobered by the dot-com bust and the recent recession, or are we headed for another bubble?

Back in the halcyon days of 1999 and 2000, it sometimes seemed like any young gun with a laptop, a web address and a vague business plan could file for an initial public offering and raise a pile of cash.

In this post-recession era, investors are pickier and funds don’t flow as freely. But it’s not yet clear whether investors have been adequately sobered by the dot-com bust and the recent recession, or whether this latest boom could turn into a bubble.

There clearly has been a surge of interest in initial public offerings, led by LinkedIn’s recent IPO and announcements from Groupon, Pandora and Zillow that they plan to go public by selling stock.

That’s in addition to rampant speculation about whether, or when, hot, young technology upstarts such as Facebook and Twitter will jump in the pool.

Venture capitalists and investment bankers are watching closely.

“You’ve got all sorts of pent-up investor demand,” said Lee Simmons, an industry specialist with Hoover’s, which tracks IPO activity. “You’ve got venture capitalists who have been basically in the red for 10 years, and these are people who want to start making money again.”

The excitement could lead some investors to take risky bets, especially on companies that show a lot of promise but little profit so far.

“There will be echoes of the late '90s and early 2000s bubble,” he predicted.

Still, Simmons thinks this time is different from a decade ago in some important ways.

For one thing, investors are generally more cautious than during the dot-com days. For another, there is less money to invest than in years past.

Reuters reported last month that more than $5 billion in venture capital investments went to young companies around the world in the first four months of this year, based on data from Thomson Reuters Deals Intelligence.

That pace of spending is far behind the figure posted in 2000, when investors poured $55 billion into young companies, according to Reuters.

Simmons also said that while big-name companies like Facebook are getting lots of buzz and attention, medium-sized companies that may have been a shoo-in for funding a decade ago may find it tougher to get backing today.

The “are we or aren’t we in a bubble” speculation has been rampant among technology executives and venture capitalists, some of whom who lived through, and perhaps even actively participated in, the last bubble.

At the D9: All Things Digital meeting of the tech elite this week, The Wall Street Journal reported that the “bubble” question was a hot topic. But many took pains to differentiate what’s going on now from what happened a decade ago.

"It's a different bubble this time," Ross Levinsohn, executive vice president of Yahoo said, according to the Journal. "Today there's no question that the [new companies] will be in business and making money. It's just a question of how much."

One thing that’s likely on everyone’s mind: How much of the money invested in the dot-com bubble was squandered? That is one big reason even the most eager venture capitalists are showing at least some caution.

“Most of these companies that went public in the late '90s sold for several dollars less than their opening share price,” Simmons said. “We don’t want to go back to those days.”