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By Sarah Left, 17 April 2000 17:30

COMMENT The technology industry woke up with a bad valuation hangover on Monday, after the Nasdaq lost 25 per cent of its value last week, and about 40 per cent overall during this year's correction period. The UK's Techmark fared a little better, losing 20 per cent of its value. The numbers go up, the numbers go down, but the hard truth is that technology stocks have finally fallen to earth. A major correction has been in store for some time now, and if anyone needs proof, think back to the VA Linux IPO in December. The company broke Wall Street records when its share price shot up 700 per cent in the first day of trading. The company offered its shares at $30, and ended the day at $242 per share, giving it a valuation of $9.5bn. The shares were trading for $36 mid-Monday. It's cases like this that have made the Luddites get into a frenzy, with old-school analysts barely containing their glee at the prospect that the upstart dot-coms will be shown the FTSE 100 door. The words 'I told you so' are echoing around the monied corridors of power. But before you pile all your money into British Airways, consider this: the stock market has never understood technology companies and still doesn't. Miles Saltiel, director of technology research at WestLB Panmure, agrees that the hype over the last year was not sustainable. But the correction, he believes, is no bad thing for technology stocks. He said: "In a bull market, you see good stocks bought with bad, and in the correction you see good stocks sold with bad. But the bad stocks won't be bought back. You'll see the extinction of bad business models." As if to illustrate that point, German ISP T-Online floated in the middle of all the fuss. And floated well. With a modest offer price of E27, T-Online finished its first day of trading at E35.20. "It's been priced to sell," said Saltiel. "This will point up some of the problems with the free ISP revenue model. If you can buy an ISP with revenues or one without revenues, I know which I'd choose." Hitesh Mehta, director of venture capitalist firm, Amadeus Capital Partners, said: "In the old days, people used to stay away from specialised markets like technology. Now everyone is wading in without understanding the market. Only a year ago, the Nasdaq was at 3,000, and it's still over 3,000, so tech stocks are still worth more than they were a year ago." There's no substitute for research when trying to value a high-tech company, Mehta added. "We look at the technology, the team and the space," he said. "Good companies - like Autonomy, Intershop, Baltimore and ARM - will continue to climb in value because they are solid businesses." According to Saltiel, in a correction you generally see Nasdaq lose 40 to 60 per cent of the value it gained in the bull market. He expects a short, sharp fall for the Nasdaq over the next few days, and a lesser fall in Europe. So if you're one of those investors, just take two aspirin and invest in a sound business model. It's one of those things you just can't do last minute.