85% of Tech Leaders Optimistic on Economic Recovery, but Companies Project Employment to Remain Flat; 56% Say Expiration of Bush Tax Cuts will Reduce Investments in Start-up Companies; 60% See Venture Capital Model as Permanently Altered by Weak IPO Market
EAST PALO ALTO, Calif.--(BUSINESS WIRE)--On the heels of one of the most severe economic downturns of the last century, and amid a continued sluggish global economy, the DLA Piper Technology Leaders Forecast Survey found that industry leaders are confident of continued economic recovery and project moderately increased sales revenues for tech companies over the next six- to 12 months. The complete survey results are being released today in conjunction with DLA Piper’s Global Technology Leaders Summit being held at the Rosewood Sand Hill in Menlo Park, CA, where speakers include John Chambers, Chairman and CEO of Cisco, Shane Robison, Chief Strategy and Technology Officer of HP and Michael Moritz of Sequoia Capital, among other distinguished technology industry leaders.
“The capital requirements and ROI timing for CleanTech are not ideal for the current venture capital model. The infrastructure and financing requirements are significant, ranging up to hundreds of millions of dollars”
The survey, measuring the attitudes and perspectives of top executives within the technology industry, reveals that close to 85 percent of technology and venture capital executives believe the global economy is on a sustained path of economic recovery. This is a notable increase in confidence over the survey DLA Piper commissioned just six months ago, when 69 percent of technology leaders projected that an economic recovery was at hand.
“While some economists and headlines question whether the U.S. economy is headed for a double-dip recession, technology leaders seem confident of a sustained recovery,” said Peter Astiz, Global Co-Head of the DLA Piper Technology Sector Practice. “Tech leaders are forecasting stronger sales and earnings across the board, yet they are not planning to invest in hiring nor R&D. This suggests that we may be in for a prolonged period of guarded investment and slow growth.”
Tech Companies Expect Sales Growth, But No Increases in Employment and R&D
Survey respondents indicated high levels of confidence in their own respective business plans and financial forecasts for the next six- to 12 months. Nearly 72 percent of respondents expect their firms to experience sales growth during that time period; more than 82 percent forecasted business demand will rise. Start-ups and mid-sized technology companies were slightly more optimistic about their sales growth prospects than were larger technology companies.
Still, in a clear illustration of the caution with which companies are proceeding in the current economic environment, 43 percent of companies reported they expect to keep staffing levels flat. The outlook is gloomier among large tech companies. For those companies with over $1 billion in annual revenue, nearly 60 percent expect flat or decreasing employment over the next six- to 12 months.
Weak IPO Market Permanently Altering Model for Tech Start-Ups
Respondents also widely agreed that the weakness in the IPO market will continue, notwithstanding some improvement in 2010, with nearly 72 percent of respondents indicating that they no longer view an IPO as an optimal exit strategy. As a result, more than 59 percent of these executives believe the traditional venture capital model has been “permanently altered” – and expect both fewer venture capital firms and fewer funded technology companies in the future.
“This is a profound, game-changing development. If there is a long-term expectation that the IPO market will not rebound, that means a reduction in the number of dramatic ‘home runs’ for venture capital investors and lower overall returns. Fewer IPOs also means fewer small- and medium-size public technology companies which traditionally have been the acquirers for venture-backed company exits,” said Astiz.. “Of course, tech companies will continue to invent and innovate, and investors will continue to invest, but the model is definitely changing. For start-up tech companies, the bar is being raised, capital will be harder to come by and pressure to perform will increase.”
Government Impact on Tech Sector
There was a mixed reaction to the expected debate and vote on the Bush-era tax cuts that are set to expire at the end of the year. A majority of the business executives responding to the survey (56 percent) believe that an expiration of the tax cuts would result in reduced investments in start-up tech companies and venture capital funds. However, 30 percent of tech executives believe the increased government revenues generated with the resulting tax increase would help reduce deficits and improve general economic confidence.
Tech leaders were more bullish on government investment and involvement in the CleanTech sector, with nearly 84 percent of respondents favoring tax incentives and other active involvement in that sector. CleanTech and Cloud Computing were seen as the tech industry’s two most promising growth opportunities according to a ranking that appears in the survey.
“The capital requirements and ROI timing for CleanTech are not ideal for the current venture capital model. The infrastructure and financing requirements are significant, ranging up to hundreds of millions of dollars,” said Curtis L. Mo, a partner at DLA Piper. “There is a major funding gap here. This suggests that the financing models for CleanTech companies will continue to evolve, and must allow meaningful growth of these technologies in the US. Clearly, venture capital will play an important role, but government and alternative forms of private financing will play an equally, if not more, critical role.”
The DLA Piper Technology Leaders Forecast Survey Report is a 23-page examination of the current perspectives and attitudes on the major trends, challenges and opportunities confronting the technology industry. The survey was conducted in September 2010 and the results were released today in conjunction with the DLA Piper Global Technology Leaders Summit. For a copy of the full results of the survey, please visit http://www.dlapipertechleaderssummit.com/, where you can also watch live webcasts of the Summit’s keynote addresses. On Twitter, catch live updates from the event by following #DLATechSummit.
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