The Tech Engine Revs Back Up – Maybe

One of the neat things about business is that it runs in cycles.  I’ve been involved in the software business since 1985 when I started my first company.  Since then, I’ve seen numerous cycles with a wide range of amplitudes.  I don’t try to time any of the cycles, the peaks, or the troughs; rather I just invest and work hard all the way through each of the cycles.

Given the negative sentiment across many parts of the business universe (e.g. the NY Times headline this morning Jobless Rate Hits 8.5%; 663,000 Jobs Lost), I’ve been pleasantly surprised by the Q1 performance of many of the companies I’m an investor in.  Several had record quarters, most made or beat their Q1 plan (obviously the easiest plan of the year to make since it’s usually baked near the beginning of the quarter), and a couple had extraordinary growth that surprised everyone.  Some struggled, but when I look at the overall distribution of behavior across our entire portfolio, it was kind of what you’d expect from a typical economic environment versus one that is either distressed or bubbly.

This morning during my daily information consumption routine, I noticed four things that stuck out.

All of these are nice leading indicators that the exit environment for tech companies, which has been frozen for the past few quarters, is starting to thaw out.  It’ll be interesting to see if this is just a warm day mid-winter or actually the beginning of spring.

  • warm day in mid-winter. government intervention is only making the problem worse and preventing the market from healing itself. this is a political problem and will continue to grow until it is dealt with. as we are quite far from the american people dealing with it we are thus quite far from a solution.

    there is also the issue that the monetary base has been massive expanded, so that if there is a real recovery, and if banks do start lending and things go "back to normal" again, then it will unleash a ton of inflation because of how much the monetary base has been expanded, i.e. how much banks can expand the money supply by lending.

    but all this will become rather obvious in time.

  • Sat

    Brad, Thank you for shedding light on positive things in this depressing economy. We need the optimism in our industry more than ever.

    I do agree, the signs are encouraging, and as I was talking to a recruiter friend, he said he is seeing lot more activity in last one week than ever before this year. Increased activity in tech hiring is always a good sign, IT is implementing projects, which would lead to more orders for tech vendors. Other trend I am hearing from my sales friends is that most IT execs are sticking with proven or well known vendors and are less willing to do business with smaller/unknown entities. So, as a result, most small enterprise software companies are suffering real bad ( one that I know only met 50% of their revenue targets for Q1 ). Both these trends apply to enterprise software, don't know whats happening on consumer side of things.

  • Dennis

    Hey Brad – I'm building retail stores for VZW. In my world, the consumer is doing pretty well. Just ran Q1 year over sales numbers, our Blackberry sales have increased 530% vs. Q1 08. I'm guessing 90% of it is small biz/consumer. Massive new subsidies & advertising are the primary drivers.

  • hi brad, looking forward to reconnecting at GOT, hope you get there early and stay late!

    Any thoughts on how the imminent capital gains tax raise, and looming regulations on private equity (that seem to be brewing in the administration) could dampen the natural comeback of tech industry liquidity? Specifically, can you comment or blog about those considerations as they may have impacted any of your past buy/sell deals?

    (As for me, I'm leaning toward Flagg's approach of just keep making money and don't look for an exit.)


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  • One more data point. Our business hasn't slowed down at all. February was a record month for us, even though only 28 days. March came awfully close to breaking it. Overall we are ahead of projections for 2009.

    Oh and Michael we are part of Bill's empire and working toward building a sub-empire of our own.

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