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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
January 18th, 2008


By Brent Holliday
Greenstone Venture Partners

2008… Oh Great

 

“There's somethin' wrong with the world today,
The light bulb's gettin' dim.
There's meltdown in the sky” - Aerosmith, Livin’ On The Edge

 

On Wednesday night, I stood among a crowd of Canadian and American investors and a handful of local tech entrepreneurs feeling good about the technology industry.  Why?  Because Colin Hansen (he of the incredibly long Ministerial name: Minister of Economic Development and Minister responsible for the Asia-Pacific Initiative and the Olympics… whew) was gamely trying to show that this government was behind the technology sector and that he, too, felt the energy in the room from a great day at the Financing Forum.  Mostly, he succeeded in talking up BC’s tech sector. The only part I cringed at was when he proudly announced the 2006 annual revenue from the industry at a whopping $15.6B (yes, with a B).  Ummm, the Silicon Valley guys in the room know that HP, alone, just did $28B and Intel $11B… in the last 3 months!!!!  OK, not as impressive to the Americans, but hey, nowhere to go but up, right?

I have to say it was refreshing to be at the Forum with so many other investors and feel the palpable optimism for the IT and Cleantech sectors.  I feel that if the Forum expanded to include the other hot sector in town, digital entertainment, the investors would have left downright frothy.  The companies were excellent. The panels were informative and, sometimes entertaining.  And all of this stands in stark, stark contrast to what is happening outside the door and around the world in business right now:

  • Locally, nervousness brought on by M&A and poor performance:

  • SAP finalizes its purchase of BOBJ… what happens to Vancouver’s jobs?  Is the biggest local employer of software company employees going to shrink ops here?

  • MDA sheds the information systems and space division.  While brilliant for the shareholders of MDA, when will the jobs evaporate for highly skilled local folks?  I know the acquiring US company, ATK Space Systems is talking a good game about keeping the division here… but Vancouverites remember a guy named Michael Heisley who famously declared that he would not move the Vancouver Grizzlies NBA team, then promptly left town before the ink was dry on the final contract.  Lets hope Heisley isn’t on ATK’s Board.

  • QLT is selling its snazzy building and shedding 115 jobs as it fights to see another day as a much smaller biotech company.

  • The Globe headline says it all this morning “US Economy Teeters On The Brink”.  We all sell in the US.  We are all nervously pondering our 2008 sales projections.  We are all rationalizing that the sub-prime mess will miss technology or that in a recession, companies spend on IT to become more productive and squeeze out costs.  Mostly, we are just spectators in what appears to be the biggest train wreck in a generation… I was in business school during the 91-93 recession (with a whole lot of smart twentysomethings that couldn’t find a job!) and I have not known one in my business career (remember, 2001 was a technology rout, not a broader recession).

  • All of this bad news seems to be worsening daily.  Analysts are revising down forecasts across the Board.  The NASDAQ is where it was in March of 2007, down 500 points or 20% from its peak.  That is a serious move, especially when you consider that the peak was Nov 4th.

  • The really BIG question is not yet answered… will the US problems drag the rest of the world along with it?  If you listen to US based pundits, this is a foregone conclusion.  But pardon me if I can call them on that xenophobic point of view.  Europe is much stronger than 5 years ago and China and India were backwards third world countries during the last big worldwide recession in the early 90’s.

I think that it would be very easy to join the crowd here and crawl into a dark room for a year or so and hope it all goes away.  Unfortunately, we can’t and we won’t.  Let’s look at some of the more specific issues of a US recession from the consumer and enterprise sides.  The large enterprise is global.  Growth was not necessarily planned in the US before all this sh%t hit the fan.  Very big enterprises were riding the wave of a cheap US currency to open up profitable new countries around the world.  The small and medium sized companies in the US are probably most vulnerable.  If they haven’t yet invested in a global strategy, they will not have the funds to do it now.  But, as mentioned before, they will spend money if they see a short term ROI in cost improvement.  IT value propositions will be all about increasing worker productivity and reducing costs for the next year, at least.

Great innovations come out of necessity… and downturns and recessions have spawned disruptive technologies in the past (the Internet emerged out of the last big recession). 

Then there is the US consumer.  They are the hardest done by in this mess.  Their houses are worth less.  They have high personal credit card debt.  They will entrench with what they have and be forced to spend after tax dollars on paying off debt instead of buying new couches, TVs or cars.  And they will travel a lot less as the cost of energy ups the plane travel costs and makes their cars expensive to run.  What will they spend money on?  The staples.  Clothes and food.  But the US consumer is not going to sit at home and twiddle their thumbs.  Where will they entertain themselves?  How will they communicate?  Where will they get cheap pastimes?  The web.  The web.  The web.  Internet based services for consumers and the devices that power that communication will remain hot. 

The business models behind such consumer services is mainly advertising based.  If the economy is going in the tank, won’t ad dollars too?  The sheer growth of eyeballs and users on-line will SHIFT the ad dollars that are available to the Net.  If I was a TV network or a radio station, I would be very nervous about ad revenue. But not as a great money source for web properties.

And what about the consumers in Canada, Europe, Australia and Asia?  We may have high energy prices but we seem to still have solid real estate, little debt compared to our US cousins and, especially in the case of Asia, insatiable growth.  China alone now has 280 M Internet users!  And that is only 1/6 of their population!

No doubt there is a lot of bad news and people are nervous.  But at this point, no one really knows how this will all play out.  2008 looks like one interesting year.  I’m going in with a glass half full outlook.  Hopefully, by the time December rolls around it won’t prove to have been a glass half full of bad milk.

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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