What's on the technology horizon? Six perspectives—Part 2 - Business of Technology

Computer Technology Review, June, 2003

Meanwhile, almost every day I see strong business plans, assembled by veteran entrepreneurial teams, that by all rights deserve seed round investment. But they are finding none. The VCs aren't investing in new startups these days, and that vital, small army of lone angel investors, so crucial to seed round investments over the last five years, has evaporated along with the angel's stock portfolios.

This lack of funds has essentially killed off the latest generation (that is, two years' worth) of new companies, and stunted the one that came just before it. There are a lot of brilliant new technologies, products and services out there waiting to be born, some that might have kicked off the next great tech boom. Instead they are still out there waiting--and dying. We will feel the consequences of that loss for years to come.

The same stock market downturn that has frozen the IPO market has had a comparable effect upon the available capital in established companies. Burned by the dot.com bust and over-hyped new IT products in the recent past, big companies are wary these days about spending a dime on upgrades, much less new equipment. IT purchasing, two years ago in the hands of the chief information officer, has been handed back to the CFO, who these days has other priorities besides IT investment. Until stock prices rise and companies have a market for secondary offerings and other sources of capital, they aren't going to invest in technology. This resistance has had the expected destructive impact on enterprise hardware and software vendors.

The irony of all this is that in every way but financial, the tech industry is poised for its next great breakout. Moore's Law ticks ever-onward and whole new generations of processors, chips, PCs and consumer products have all recently appeared on the scene. A new wave of entrepreneurs is ready to begin company building. And the cash needed to underwrite this next wave is sitting in VC's coffers. All that's needed is the spark of renewed optimism to set the whole thing alight. Unfortunately, that spark is very far off. For now, there is only darkness.

Mark Stevens, Sequoia Capital

The biggest issue confronting technology companies is the drop in corporate IT spending. The companies that supply IT and electronic products for the consumer segment are relatively healthy, but the companies that sell into corporate IT and operations departments have watched their sales fall considerably over the last three years. That includes software and telecommunications suppliers, the chip companies that supply to the systems manufacturers, and the IT service companies.

You can blame the post-bubble environment. We had perfect weather from the late '90s to the first quarter of 2000, followed by the perfect storm of the last two and a half years. A lot of enterprise IT equipment and software was purchased in the late '90s without much forethought. Some of the purchases were for Y2K upgrades, but many investments were motivated by a rush to become an e-business. Many corporations weren't ready to adopt the technology. That means a lot of software and hardware just sat around. Then came 9/11, and a weakened world economy, which added salt to the wound.