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Send Them to the Glue Factory A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry. Something Ventured: May 2nd, 2003 By Brent Holliday Greenstone Venture Partners   "I watched you suffer a dull aching pain Now you decided to show me the same... Wild horses, couldn't drag me away Wild wild horses couldn't drag me away" - Rolling Stones, Wild Horses Somewhere in the Silicon Valley, a man with a long beard, no hygiene to speak of and a long coat is holding a sign that says, "Repent, the end is nigh." The four horsemen of the apocalypse have officially arrived. After death (Sep 11), famine (drought) and war (Iraq) we have plague (SARS). What's next... locusts? It is now well over three years since the horses started out of the barn for the technology industry. The world economy has suffered along with us in tech, but the recent string of events continues to hamper any chance of a recovery. If corporate IT buyers need any more excuses to keep from opening their wallets, world events like the SARS outbreak give them ample reason to sit tight. SARS has been especially cruel to Canada and Asia in terms of economic impact. Southeast Asia has essentially shut down. Entire supply chains in technology have been impacted and the only hot market for IT customers has been quarantined. Economists are tripping all over themselves to revise GDP growth numbers in Singapore, Taiwan, China and our home and native land. For those technology companies lucky enough to have cultivated a channel into Asian countries (Japan and Korea seem to be SARS free), and starting to see good growth in revenue, this is a cruel turn of events. The Iraq war may have ended up being a lopsided battle, but the work up to the war caused a whole quarter of grief as spending was slow and confidence was low. The expected surge of optimism after the war has been dampened by SARS. Now that the first quarter is done, what can we expect for the year? How will SARS impact any hopes of growth? Despite all warnings and travel advisories given by pretentious doctors in Geneva, I ventured to Toronto this week to see the impact first hand (Actually, I was going there anyway… It's not like I have an investigative travel budget from T-Net!). As many of you have already guessed or figured out for yourselves, this "epidemic" is ridiculously overblown. The fear created by the reporting of this disease is not present in Toronto at all. I rode the subway, I shopped in the underground malls, I sat for hours in the airport and I shook hands with at least two dozen people. I even rode in a small car with a man who had spent the better part of early April in the Hospital for Sick Children for his daughter's surgery. I have no fever and I'm not going to sit in my house for 10 days upon my return. Most people in Toronto acknowledge that the economy has been hit hard, but they don't understand why the technology business should grind to a halt. It is one thing to have tourism decline and conventions cancelled, but quite another to have a scheduled sales call or contract negotiation delayed by this outbreak. Production, development and manufacturing should not decline at all. I have spoken with two individuals living in Hong Kong and one in Singapore in the past week (Did I mention that I had no travel budget to go there myself?). They say that the magnitude of the disease's effect is larger there than in Canada, but it is still miniscule relative to the population. Nevertheless, the precautions ordered by the government have crippled the economy there. Unlike Toronto, people are wearing masks, refusing contact (like hand-shaking) and staying away from public areas. Workers are not showing up at manufacturing facilities and conventions have been cancelled. It is near-panic in some places even though my contacts acknowledge that they know no one who knows anyone who knows anyone that has SARS. The business leaders seem to be resigned to the fact that the next couple of quarters and perhaps the whole year are a write off. One of my contacts in Hong Kong, a telecommunications analyst, said that, although the actual number of cases is low and the draconian tactics have appeared to slow the spread, the lights are effectively off for at least May and maybe June for any business there. My assessment is that Toronto is going to bounce back quickly, especially from the good news coming out of there this week. But Asia's (over?) reaction has been very different and the economic impact there may be far worse than the actual impact of the disease. I think the world economy (and hopefully Southeast Asia) will bounce back too. Apocalypse be damned! There are too many optimistic signs out there to ignore. Investor confidence in technology is back. After a sustained rally since October, the NASDAQ is up 12% this year already. When a poor economic indicator shows up, investors come up with excuses as to why the number is pessimistic (it was during March when war fears were highest). Six months ago, the number would have sent the market tumbling. Today, investors give it the cold shoulder. The glass is half full again. Earnings by companies in the first quarter largely met or exceeded expectations. It was the first time in a long time that people weren't moaning about disappointments. A slew of recent CIO polls and IDC reports show modestly improving sentiment for corporate IT spending. I've seen predictions for anywhere between 1% to 4.5% growth in 2003. That's an improvement since January, when predictions were between -1.5% and 2%. In the US alone, that's $372B in spending by enterprises large and small on technology. If it grows at 4 - 5%, that number will be over $500B by 2008. In a completely un-scientific survey, I saw good first quarters with expectations being met or exceeded in about ¾ of the early stage companies that we work with. Everyone is learning about new expectations and capabilities needed to reach those goals. It is a refreshing change from the last three years. So despite the rash of bad news and the "if it's not one thing it's another" feeling you get when something like SARS rears its ugly head, the outlook is much better for the technology industry and the broader markets. The four horsemen are headed back to the barn. If I see grasshoppers in my yard this summer, all bets are off. Letters From Last Time - I had a flood of well-wishers and sympathies for Peter Standeven and his family after eulogizing him last time. Since I wrote the piece, I attended his memorial service with a good number of my colleagues in the technology industry, which was appreciated by Peter's wife and kids. If you met Peter at some point and want to leave a lasting note or thought for his family to read and remember, please go to www.obituariestoday.com and search for Peter Standeven. You can leave a brief note and read others that are there.   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). Something Ventured Archive Online Venture Capital Guide Printable edition