Tech Boom – Beginning or the End?30 Oct 2013

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I. Technology = Disruption

II. Technology Sector Activity

III. Scenarios

- Historical – 1990s Tech Boom + Bust

- Forward Looking

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TECHNOLOGY = DISRUPTION

Disruption

An innovation process where cheap, low-quality products ultimately displacing expensive, high-quality products.

Disruption typically ruins the prospects of organizations caught on the losing side.

Qualities of Disruptive technology

1. much cheaper + easier to use2. improve at a rate much faster than the

competition3. performance satisfies most demanding

uses4. New technology dominates

Disruption transforming all industriesAUTOMATED

Hotels + Travel

Industrial + Manufacturing

Professional Services

Brick n Mortar Video

Floor Trading

Wired Telecom

Printing

Meter Reading

3d Printing Gene Sequencing

Big Data

Mobile Apps

DESTROYED CREATED

Moore’s Law, and its Long-Term Implications

Moore’s Law: number of transistors on a chip doubles every 18 months

Implications:

• Your phone is more powerful than a 70’s supercomputer

• Computers are steadily acquiring human capabilities

Does Tech Enable Job-Free Growth?

Unemployment drops, but no one rejoins work force

Productivity grows, but not employment

Where are displaced workers going?

% of workers on SS Disability doubled since 1980

Low wage jobs growing fastest

Goodbye Middle Class. Hello Tech

source: NELP, Alan Krueger via Huffington Post

LeftLower wage jobs dominate the recovery, though higher wage jobs are holding their own

Right The middle class is shrinking steadily, with job automation playing a key role

income disparity will only worsen structural unemployment

successful tech = disruption

Tech = Disruption – Recap

automation = C U L8R middle class

TECHNOLOGY SECTOR ACTIVITY

HiddenLevers

VC Market Overview – Where and What?

sources: PWC Moneytree, Steve Blank

VC deals still dominated by software, followed by biotech

California dominates - 46% of all VC funding in 2013

VC Market Overview – How Much Money?

sources: PWC Moneytree, Steve Blank

VC funding actually higher in 2011-2012 than today

Could VC trends be front-running public markets?

VC Market Overview – Mark to Mystery

source: Wall Street Journal

Twitter, Pinterest, and Snapchat command huge user bases –challenge is monetization

Snapchat specializes in disappearing content – makes advertising more difficult

All of the above rely on digital ads as business model – can the advertising business sustain GOOG and all the rest?

Winners - Four Horsemen

Facebook and LinkedIn show

strength of large social networks.

Netflix threatens cable with

original content & streaming.

Tesla disrupts automotive and

dealership models.

YTD, over $80B has been added in market capitalization.

Source: LA Times 8 March 2013

Winner - 3D Printing

Hewlett-Packard announced 2014

entry into 3D printing.

Key patents expiring

February 2014 –More growth?

DDD and SSYS major players. VJET & XONE had 2013 IPO.

Winner - Cloud Computing

Here to stay long-term. 36% annual growth. $200B market

Network security & NSA monitoring are concerns now.

Players: Dropbox,

Evernote, Drive, iCloud.

Loser - Brick and Mortar

Online shoppers killing big box

stores

Office Max Office Depot desperation

merger

Borders gone, Barnes & Noble

shrinking.

Source: USA Today Business Insider

HiddenLevers

TECH BOOM OR BUST – SCENARIOS

Tech Boom or Bust – Historical Scenarios

90s Tech Boom1995-99

Dot Com Bust

2000-02

90s Tech Boom

Fed hiked rates 6 times in 1999-2000. Target rate 6.5%

No rise in defensive equities (soap, food)

S&P up 26% annually, for last 50 months of bubble

source: HiddenLevers

550%

200%

Four Horsemen – high flyers, ushered in end of days

+4000% +1200% +8000% +1400%

Dot Com Bust

Yahoo bought Geocities for 5b

Priceline went from 1000 to 7

Brutal landing in Four Horseman

Markets followed in 2001

source: HiddenLevers

Nasdaq came back in line with S&P

CSCO -88%

MSFT -63%

DELL -69%

INTL -74%

Scenario: Tech consumes the world

serious tech dynamism being unleashed, not just dot coms

Scenario: Tech consumes the world

organizational overhauls

involve digital innovation

no spillover effect between tech + telecom

angels succeeding now came from 90s

IPO boom

global dimensions, not

just US

private market runs most of the

money flow

source: MSN

2013: Reasons it’s different

Defensive equities best

start in 2 decades

Scenario: Tech consumes the world

Apple rebound

Netflix rebound

Priceline dominance in

hotels

Priceline first S&P 500

company at 1000/share

Amazon Web Services

source: Marketwatch, Moscow News

Hints of 1996

Autotrader.com2001: 47m loss

2013: 62m profit

paradigm shiftssmartphones

photosanalytics

Facebookrebound

Scenario: Dot Com Déjà Vu

2013Nasdaq +20%

4HRSMN +230%

Elon Musk says Tesla overvalued

Facebook IPO. (enough said)

Four Horsemen – current Nasdaq outperformers, leading way to hell?

1 car on fire showed Tesla speculation

FB Instagrampurchase was done in 1 day

source: HiddenLevers, NY Times, ValueWalk, CNN Money, SeekingAlpha

major tech innovations end

in speculative frenzies

Scenario: Dot Com Déjà Vu

Doubts about economic returns of innovation

Increasing size of early funding

rounds

Big companies buying their way

into relevancy

Lackluster due diligence

source:

Bungled IPOs leading to

disappointment

2013: Reasons it’s the same

Yahoo buying Tumblr for 1b,

no rev for years

Scenario: Dot Com Déjà Vu

Priceline double top at

$1000/share

Class actions against Zynga

Color – 43m in first funding

round, now bust

Corporate profits up

20%/year since 2009

S&P annual gains since

March 09 match dot com era

source: NY Times

Hints of 2000

Groupon hijinksturning down 6b

RepositioningFiring founder

Pinterest 1/3 valuation of Twitter with no

revenue

Squareversus

MasterCard

Solyndra = Fraudtainting green

tech altogether

Tech Boom or Bust – Future Scenarios

Jury’s OutTech

Consumes the World

BadDot Com Déjà Vu

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