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Morning Report:听2016 was a tough year for tech. By the end of the year, however, we circled back to good. What changed?

Early 2016 was a . Valuations fell, repricing revenue and discouraging IPOs. The startup narrative, gyrating in sync with public comps, flipped to a raise听now story.

As you know, of course, by the end of the year, the public markets听had recovered. In 2017, we听have seen fresh market highs, tech’s Big 5 , a return to an , and .

What changed between the two time periods? A has part of the answer, I think. Three quick quotes make the case. We’ll start with the big trend:

Funds tracked by Bank of America Corp. own the highest percentage of technology stocks on record compared to their benchmark. It鈥檚 a sector that鈥檚 carried U.S. stocks to new highs[.]

Here’s what that looks like in practice:

Rarely ones to shun the herd, active funds are now 71 percent overweight in the FANG [Facebook, Amazon, Netflix, Google {sic}] companies after making the biggest move from value to growth since 2008, according to Bank of America.

And the results from the shift in investing patterns:

The tech-powered rally has catapulted the sector to a price-to-earnings ratio of 24.4, or 41 percent above the 10-year average.

You can quickly see our argument when it comes to what has changed since 2016.

Part of the “Return to Good” is likely built on tourist money piling into public tech shops, driving returns north. That leads to stronger multiples and a more active IPO window. In turn, this听boosts liquidity for private-market investors, freeing up capital and driving cash-on-cash returns. Some of that money recycles into new startups, and the more of it there is, the more competitive the funding environment becomes.听In response, valuations rise.

What matters more for us today is what happens in reverse. The above set of factors, as we have variously noted together for years now, can create a positive feedback loop. The opposite is also true. Falling public valuations can trickle听backward听into the world of private startup investment, ossifying active movement from rapid fire to glacial. Valuations听will then fall in response.

This sums up to the following: If we can attribute a decent tranche of 2017’s gains to money that is only chasing yield, we can infer that when that money leaves, the market听will cool. And the money is only here when the tech space is听still going up.

From the :

Outcome Health raises $500M

• , a provider of digital healthcare content for patients and doctors, has raised $500 million at a pre-money valuation of $5 billion. Investors include Goldman Sachs, Alphabet鈥檚 CapitalG, and a long list of others. Though it was founded in 2006, Chicago-based Outcome has not previously raised a venture round.

Vista Equity Partners buys Lithium Technologies

• , a provider of tools for managing brands on social media, that it is being acquired by private equity firm for an undisclosed sum. San Francisco-based Lithium previously raised around $200 million in venture funding.

IPO pops are best when moderate

• The number of tech IPOs is way up year-over year, sparking renewed debate over the pros and cons of a first-day stock price surge. Many say an initial 鈥減op鈥� makes for good publicity, but it also represents money left on the table. That leaves at least one expert advocating that companies aim for a moderate first-day pop of 25 percent to 35 percent, .