January 9th, 2004
“It ain't much I'm asking
I heard him say
Gotta find me a future
Move out of my way
I want it all I want it all
I want it all and I want it now” – Queen, I
Want It All
I see crumbling, dying poinsettias and icicle lights that
need to be taken off the eaves and, like a Pavlovian
dog, I sit at my computer and think of one word…
predictions. Yes folks, it’s that time of year when we
people with too much to say stick our necks out and tell
you what we think will happen in the next 12 months.
You could read the rest of this column for
details, but basically 2004 is when we move slowly but
surely from fear to greed.
Before we go much further, I had a look back at the nearly
six years of my columns and saw a few predictions here
and there. Like
a sideshow psychic, I never really stuck my neck out too
far and left lots of possibilities to be interpreted as
absolute worst was the August 30th, 2001
column about how 2002 looked like it might finally show
signs of a turnaround based on economic indicators of
the day. Here’s
the best quote, “In reality it will be 2002 before we
see some return to optimism and hope.”
Um, well, exactly 13 days after that brilliant
insight, everything changed, making 2002 a year that
“if it was a dog, you’d take it out back and shoot
it.” (lifted from my Dec 20th, 2002
As investors, in the stock market or in early stage
companies, we have lived in the fear cycle since the
dying days of 2000.
It’s been a long time since we have rubbed our
hands together and smiled like Montgomery Burns. Fear of investment is a good thing because it deflates the
bubbles and keeps the balance when things get exuberant.
It forces discipline and process on the investors
but it also makes for lots of cynicism and bad blood
from those not getting financed or getting financed by
giving up a pound or two of flesh.
In the public markets, any gains made in the past
few years have been tempered by pessimism and fear that
the bottom will fall out any minute.
The incredible volatility of technology stocks
stays whether in a fear cycle (“sell because more bad
news is just around the corner”) or in a greed cycle
(“buy because there is always a greater fool than
Now the NASDAQ is fresh off a 50% gain in one year, back to
pre-9/11 levels and the bears are now harder and harder
to find. Most
prognosticators have estimated that the tech stocks
still have a 20-25% run up left in them in 2004.
IPOs are starting to fill the pipeline again.
Egads, they are actually hiring investment
bankers on Wall Street again!
Where did all those starched and polished folks
go for 2001, 2002 and 2003?
What’s next? Venture capital investment
the VCs have not been stampeding in 2003, but are
starting to show signs of making more and larger
investments in 2004.
Enterprise spending on IT will increase significantly in
As this reality sinks in during 2004 to add to
the incredible surge in consumer technology spending
that started in 2003 and the sales and profits grow
under a lean and productive workforce, all the bears
will disappear and the world will tip towards greed once
fast will tech spending increase?
In what areas? I’m glad you asked.
I sifted through reports this week from Goldman Sachs, Bear
Stearns, Deutsche Bank Alex Brown and First Call and
they all see the semiconductor sector (roughly 15% y/y
sales growth) as the largest area of growth through
all agree that the communications equipment sector will
see the lowest growth (still a respectable 7-8% y/y
services and enterprise hardware (PCs etc.) sectors will
all see double digit growth say most of the estimates I
have seen. This
is a huge shift from the anemic 2003 enterprise spending
and the huge drops of 2001 and 2002.
We are already starting to see the greed cycle evidence.
Who saw Research in Motion’s stock pop almost
50% in one day in December?
How is Sierra Wireless holding a 199 P/E ratio in
this day and age? When
Nortel announced a big deal with Verizon, its stock
jumped yesterday. It
wasn’t very long ago when any contract announcements
of significant size were met with a yawn.
“Nortel will be out of business” is what many
were saying 18 months ago.
The bad side of the greed cycle is irrationality,
complacency and hubris, which we all saw last time
around in the biggest meltdown ever.
Heading into a greed cycle though, everything
seems rational (catching up with expectations, etc.) and
people are working extra hard because they can see the
success and taste the fruits of their labour.
This is a great time to be chasing the carrot.
Greed is good. It
is much more fun than fear.
It means that people are generally more
trepidation with this cycle is that it can’t all get
good again overnight.
The world is not ready for anything near what the
90’s wrought. I
expect that we will see a little of the 90’s
over-exuberance some time in 2004 and a pull back is
will run ahead of our expectations and things will go
into a lull again.
If you are looking to time things right for your
business, then you should be making hay while the sun is
shining now. If
the opportunity to take investment or take a decent
price for your company comes along, don’t assume that
the good times will keep rolling at anywhere near this
new exciting pace.
If you are looking to get something started, this is the
best time in 4 years to get going.
If you are just entering the market now for the
first time, you are in luck.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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