PRINT THIS PAGE Countdown to a bright future21/05/2008. Source: Scottish Equity Partners. Bruce Huber 
 In this article from Scottish Equity Partners, Bruce Huber compiles a list of ten critical factors which will shape the future of technology investment. He identifies major new power brokers and trends and concludes that viewed collectively, they add up to a bright outlook.
Now is a great time to be in technology as spending accelerates and merger and acquisition activity rebounds. Gartner forecasts that annual technology spending will hit $2.8tn while M&A activity is forecast to top $50bn.
Against that backdrop, here are my top 10 events, listed in reverse order of importance.
10. Drop in IPOs on NASDAQ
The average annual number of technology IPOs in the United States and Western Europe with an offer size higher than $15m is substantially below the five-year average of 175 to 200. There were just 94 in 2006. Consequently, VC-backed companies are focused on M&A deals more than IPOs.
9. Alternative Investment Market lists 1,600th company
The Alternative Investment Market listed its 1,600th company last year since it was founded. In 2006 AIM welcomed 462 new issues (including 278 IPOs). AIM used to be seen as good for fundraising, but with poor liquidity. Views are changing as it matures and NASDAQ is no longer the place to be.
8. Investment banking no longer done by investment banks
The percentage of revenue which the world’s top 10 investment banks derive from investment banking activity is falling and ranges from 19.5% down to just 3.3%. Also, there is evidence that banks drop analyst coverage of around 25% of their clients after 12 months. As a result companies are turning to hedge funds which are growing in influence.
7. Europe’s largest M&A deals are semiconductor LBOs
The leveraged buyouts of NXP and Freescale were among the largest M&A deals in Europe last year, highlighting a trend to involve more debt. Freescale alone involved some $10.5bn of high yield debt. Private equity houses are reshaping the value chain and it’s happening in telcos and semiconductors.
6. Bill Gates prepares to depart
The impending departure of Microsoft founder Bill Gates signifies the emergence of a new order. Microsoft’s growth has slowed and it faces big challenges while smaller rivals are in the ascendant.
5. Google revenue surges
Google is in rude health. Figures for FY2006 showed a 73% increase in revenue compared to FY2005. In just two years it has achieved market capitalisation of $141.4bn.
4. Google acquired You Tube for $1.65bn
Google paid $1.65bn for free online video-sharing service You Tube, a company just 19 months old. You Tube users make 100 million downloads a day. The deal signified a shift from e-commerce to e-community.
3. News Corporation acquired MySpace for $580m
News Corporation paid $580m for MySpace, a social networking web service, the second time in 12 months it paid “top dollar” for an online company. It signalled that Web 2.0 has become very strategic, very fast.
2. Emergence of Russian and Chinese IPOs
The emergence of the Russian, Chinese and Indian economies and their growing corporate influence is of major importance. You must have a Russia, China and India strategy.
1. Global economy unshaken by $70 oil
Energy supply is the biggest issue yet the global economy barely faltered when oil hit $70 a barrel. Nearly $5bn of venture capital is targeting clean energy technology. It’s the new frontier.
Scottish Equity Partners (SEP) is one of the largest independent private equity groups in the UK, and is currently investing from a venture capital fund in excess of £100 million, which is backed by leading UK and European institutional investors. With offices in Glasgow and London, SEP is one of the most active venture capital investors in the UK and has a strong investment track record. Typically, we invest between £500,000 and £5m or more, in financings of up to £30m, in early stage and growing companies in the information technology, healthcare & life sciences and energy related technology sectors. For more details visit www.sep.co.uk
Bruce Huber is head of the European investment banking practice of Broadview, the technology investment banking division of the Jefferies Group.
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