Wednesday, March 7, 2007

Musings From Montgomery

Dan Williams of Montgomery invited me to the annual Montgomery Technology Conference in Santa Monica this week. I very much enjoyed it - and made some terrific new friends.

Unlike many conferences, sessions were divided into "selling" sessions, in which CEO's pitched their companies to bankers, and "information" sessions, involving distinguished panelists. This is a great format. Panelists didn't spend their alloted time selling their companies, but instead got into some of the issues facing technology companies, both public and private, and their backers - also public and private.

Today's lunch session was entitled "Private Capital Outlook for 2007: Venture, Private Equity and Hedge Funds". During the session, Tim Draper made a comment which I thought explained a lot about the recent rise of innovative companies, and the current backlog of companies lining up again for IPOs.

Draper's viewpoint is that many large technology companies dampened down technology research and development budgets over the past five years in order to maintain margins, and have kept them there - forcing a commensurate (or perhaps larger, due to any coordinated oversight of spending) amount of innovation into the hands of small startup companies wiling to take the risk of starting a company on the basis of a perceived gap in innovation.

I like this thinking a lot - if you look within the security software industry, this is precisely what we've been seeing: lack on innovation and technology investment from the giants, resulting in some terrific new technologies that fulfill needs that were not around five years ago. It explains the growing rate of merger and acquisition activity and also explains the current woeful state of some of the "big brand" technologies.

It also means that more and more startups will start coming onto the public markets again. If the pitch sessions here at Montgomery are an indication of things to come, the first startups that came into being over the past five years are maturing to the point where their revenues and growth will create new opportunities for public investors in the public markets within the next few months.

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