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bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
industry.
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Something Ventured:
January 12th, 2007
By
Brent Holliday
Greenstone Venture Partners
The Year of Tech
“The clock keeps turning,
Why hesitate
You silly fool,
You can't change your fate…
Good times, these are the good times.” – Chic, Good
Times
This is that magical time of year where you are
inundated with reviews of last year and predictions for
this year. January also starts with CES and MacWorld,
giving geeks and gadget freaks all sorts of things to
talk about. If you peruse technology web sites, receive
technology newsletters or use RSS feeds daily, you have
seen tons of verbage already about what to expect in
2007. I’d like to say that I’ll be different and write
some inspiring new look at the data or give you some new
and relevant analysis that will lead you to tons of
profits this year… or not. Well, I’ll give it the old
college try.
If you are really busy and don’t want to read the fun
and exciting analysis that follows, just take this to
the bank and go back to work: It will be a very good
year to be a small technology company scratching for new
customers and launching new product. Technology markets
in general will sizzle.
For those of you still with me, let’s look at my
favourite subject area first: capital. I have written
here recently that Canada and BC are heading for a cash
crunch for venture capital at the early stage. I have
seen nothing to indicate differently, except that the
angel market seems to be very robust. It seems that for
capital raises of less than $2M, you might want to avoid
the institutional guys altogether. If you are a cash
flow positive company looking for growth or
acquisitions, the private equity market remains
sizzling, especially in the US. There is so much money
out there for deal sizes of $10M and up for businesses
that are profitable, it’s frankly quite stunning.
Private equity managers are scouring for more and more
good companies due to this huge over supply of capital,
but they still won’t invest in companies where their
financial modeling won’t compute (i.e. negative cash
flow). So in summary, 2007 prediction for capital is
relatively plentiful angel supply, gargantuan late stage
supply and very tight supply for the $2M to $10M capital
raise…
What about exiting investments and making shareholders
rich? 2007 will be like 2006 in that M&A will dominate
for technology companies versus the problematic IPO
(Sarbanes-Oxley continues to be a thorn in the US public
markets). To wit, in 2006, $107 billion of technology
M&A value was realized compared to $24 billion in IPO
value. Part of the dollar value surge was the increase
in billion dollar deals from 16 in 2005 to 23 in 2006.
The majority of deals (55%) continued to lie between $20
million and $100 million. The forecast for 2007 is
many more deals in the $20 to $100 million range as
markets consolidate and big players with fat stock
prices and even fatter cash positions buy versus make
the next iteration. Also, for the first time in this
writer’s career the value of M&A was higher than at IPO
(3.2x LTM (last twelve month) revenue for M&A to 2.3x
LTM revenue for IPO). As a comparative, Ironport was
just bought by Cisco for 7.9x LTM revenue…
In the markets, wireless broadband will be one of the
main stories of 2007 as 3G networks are challenged by
WiMAX for user preference. WiMAX is also the award
winner for most hyped technology as it was supposed to
roll out now and is likely not to be seen widely until
the end of the year. But the 3G networks (EvDO, HDSPA
etc.) uptake will be driven by appropriate content that
takes advantage of their speed. Remember, mobile TV is
not coming over the data networks, so what are we doing
that will command a premium price for broadband? With a
billion phones shipped this year, the consumer will look
for ease of use and interesting content… I think of
user-generated content (success of MySpace and YouTube)
and social applications (beyond SMS) as being the
reasons we consume valuable broadband. Local companies
like AirQ and Sierra Wireless should benefit from these
trends.
An unavoidable story in technology this year will be
Vista. Microsoft’s marketing machine will make sure of
it. Adoption will be slow, but the operating system
will drive PC upgrades, new application development and
security upgrades. A week will not go by without a hack
of the new system. But software will be the IT story of
the year as web application development hits critical
mass. Standards are in place, bandwidth is in place and
the compelling value proposition is apparent for
companies to live with their valuable, mission critical
applications to be run off of remote servers. It has
been a decade since Larry Ellison of Oracle launched the
“network computer” claiming that thin client computing
would take over the world. Well, it did, but it took a
long time to deploy… not unlike any Oracle project come
to think of it. AJAX was the final piece of the puzzle
for massive adoption of web based computing as it gives
the desktop experience that was missing from basic
HTML. 2007 is the year of enterprise AJAX as the front
end to all web apps. Google has figured this out and
they are hoping that AJAX helps make the operating
system of your device less relevant so you can use your
web applications from any PC or any smartphone.
Notice I didn’t say web 2.0 yet? Lest I get bombarded
by my “ahead of the curve” friends locally, I guess I
will say that 2007 is the year that we forget about Web
2.0 because its fundamental tenets are finally
understood by everyone. All new applications will adopt
pieces of what makes Web 2.0 cool (AJAX, user generated
content, ability to tap the “long tail” of the user
base, etc.). And therefore, as soon as it hits
mainstream, it will not be cool anymore. That should
happen this year. Congratulations to all of the “ahead
of the curve” guys for dragging the rest of us along
towards the future. Where would we be without you?
The consumer markets are headed for very exciting
times. The Windows Home Server and announcements of
terabyte hard drives (for $500!!!) from Hitachi and
Seagate will make the home network and media integration
much simpler. This year I will buy a machine that sits
somewhere dusty in my house that will be my home hard
drive, fastidious backup device, PVR, music jukebox and
home movie repository. All computers, smart phones,
game consoles, set top boxes and (with a little Zigbee)
home appliances that I allow into my network will attach
to this machine seamlessly. It is nerdvana…
The iPhone launch has every tongue wagging and I will
not get into predictions about its success like every
other writer out there. The best description I heard
about the iPhone is that it is the true Mini-mac. Think
about it. Apple quietly announced last week that the
“computer” will be dropped from its name, now just Apple
Inc. The IPhone runs Mac OS X. It can have 8G in
storage. It won’t run Adobe Illustrator, but for all
main computing tasks… with a Bluetooth keyboard and
widescreen when turned horizontally, don’t you have a
laptop?
So 2007 looks very promising for technology. I wish
your company great success this year and many, many
successful exits for BC technology companies. Finally,
I thought a really good look at old predictions would be
appropriate.
I found this gem from Internet World making
predictions about the web and giving us the best and
worst on the Internet… FROM 1994! It’s a hoot.
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
myself, thanks).
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