Venture and Investment

Where is the venture and investment world heading? Post the Internet bubble, venture capitalists (VCs) are still a bit cautious. We sat down with several of the largest VC firms and tried to get a sense of where their emotions are with regard to investing in computing technology. (Investing, especially in the technology space, can be quite emotional.)

David Skok, partner at Matrix Ventures, says, "We're coming off of the worst down market ever seen in this industry. No one ever saw anything this bad. Sure, it has a cleansing effect, and we're still cleansing the financial aspect. There are still too many money firms chasing too few good deals."

Rick Burnes, partner at Charles River Ventures, puts into perspective part of the runup experienced in the late 1990s:

The industry went through a very rapid period of expansion in the last half of the 90smuch more so than ever before. Why? Productivity numbers on computing became imperative. It became strategically imperative to have really good systems or you could not compete. That was the main driver of capital equipment in that timeframe. Wal-Mart is a very good example. The concept of Wal-Mart could not have existed in 1980the equipment was too expensive. Wal-Mart was enabled by technology and it is very important that that be understood. Then the market became saturatedtoo much investment, which led to the decline in the first part of this decade.

The investment community is regrouping and regenerating steam and courage. "The areas that interest us now are RFID, wireless, open-source software, and the digital home," states Skok. "We see the enormous values brought forth by new advancements in these categories. Information and speed are at the heart of a changing method for doing business and the open-source initiatives are changing the balance of the incumbents," continues Skok.

Burnes observes that the communications and computer industries are going through an important change of customer:

We now have a very large technology industry that is moving downstream in costmoving down from productivity equipment in business now to the consumer and entertainment area. Some of the most sophisticated semiconductors are going into consumer gear. Our industry typically evaluates investment opportunities based on ROI, and now in the consumer market, we have to somehow evaluate Sponge Bob.

Of course, there is the common theme of compressing time. "In the 1970s, we didn't even have breakfast meetings," starts Burnes, "and today if we haven't exchanged a dozen business correspondences before we leave for the office, we feel we're under serving our employer."

So there appears to be some optimism for opportunities related to communications and tying data sources more tightly together. Throughout this book, we have highlighted the importance of cell phones (with advanced features) and cellular service (in addition to other wireless communication forms). It would seem sensible that the "communications" market would be picking up steam. The hesitation is partly due to a hangover of the late 1990s when telecom opportunities, the biggest growth hopes, led to unrealistic market runups. Have fundamental aspects of the economy changed enough to allow for a more sane resumption of communication investment?

An earlier chapter of this book discussed a number of changes that could spell the beginnings of fresh opportunity, including the following:

• Reduction of the number of in-office workers driven by an ability to create virtual office environments via combined voice and new data connectivity such as virtual officeware and beyond

• The adoption and growth of instant messaging and text messaging, driving home the value of asynchronous yet immediate correspondence

• The willingness of businesses to remove intercompany barriers and tie in outside systems more closely, driven by desires for 80 percent to 90 percent improvements in time-to market efficiencies

• Massive data volumes emanating from devices such as RFID tags and digital video cameras driving needs for improvement in wireless speeds and penetration from back-end warehouses through retail shelves and even on factory floors

• Mass-market demand for real-time information while watching TV, while playing electronic games, and while at sporting events, all of which now demands a two-way interactive communication mechanism

• Need for higher-coupled military intelligence built on real-time wireless extremely data-rich streams

Because so many "intelligent" devices can or will be wirelessly interconnected (refrigerators, automobiles, bathroom scales), there will emerge a new demand to give them the ability to exchange meaningful information in addition to raw data.

So, yes, a number of significant changes and advances have taken place over the past handful of years that likely will rejuvenate many "communications" areas.

Technological advances have occurred all throughout our lives. What's new, and where the opportunities now lie, is the ability for data sources to be intertwined more rapidly, plus a massive increase in the number of data sources themselves (medical data, video data, location/GPS data, identity data [RFID], and so forth). The intertwining, enabled by wireless-everywhere and standards (and self-describing data), brings new levels of efficiency, safety, and flexibility.

The opportunities are so vast they are almost intractable. What makes the new future attainable is that standards more than ever are helping interoperability, and creators of data streams are utilizing self-describing styles. These two events are allowing huge numbers of Average Joes to sit down and self-create solutions and values. Whereas the past required teams of programmers, some problems of the future will be solved by Web-savvy people using standard software tools. Whereas the past required special hardware engineers to design components, many of the device-to-device interconnections of the future will fall out as naturally as today plugging your blender into the wall outlet (although the future communication is primarily without wires). As a world community, we have learned how to do this new style of software creation called the open source and we suspect that legions of ordinary people will be creating sharable and high-quality nearly free software. Why? Because the devices are begging for some attention, and the manufacturers would rather leverage resources outside of their payroll.