Threats to US Tech Economy Seen in Overhang from National Debt,
Poor Math and Science Focus in US Higher Education
(Silicon Valley, CA) May 6, 2010 – As business and political leaders continue to speculate whether the global economy has entered a sustained recovery, the DLA Piper Technology Leaders Forecast Survey reports that the vast majority of technology leaders believe that such an economic recovery has begun and will sustain itself during 2010.
The survey, measuring the attitudes and perspectives of top executives within the technology industry, reveals that 69 percent of respondents believe the global economy will continue to see “gradual improvement” in 2010. These leaders also report a renewed confidence in the US capital markets, with 73 percent projecting that the IPO market for venture capital-backed technology companies will rebound in 2010. One in ten (10 percent) are expecting a “substantial increase” in IPO activity due to a backlog of companies seeking liquidity and investor appetite for high growth.
This optimism is tempered by a vocal minority of tech and venture capital executives surveyed, 22 percent, who believe the fledgling recovery will stall this year, and that the US will experience a double-dip recession. The survey revealed that tech executives in general have strong concerns that the overhang from the national debt, along with reduced quality and growing costs of US higher education, will negatively impact the competitiveness of, and business climate for, US tech businesses.
“While it’s been a subject of much discussion in all business circles, the tech industry clearly believes that a sustained economic recovery has begun,” said Peter Astiz, Partner and Global Co-Head, Technology Sector at DLA Piper, the global law firm that sponsored the survey. “The survey is consistent with the improved IPO market for tech companies, but reflects doubt that the market will fully rebound to historical norms.”
Astiz continued, “Conversely, there is a notable and deep undercurrent of concern about the stability of the recovery and longer term prospects for the US technology industry. Tech leaders worry about the impact of the national debt on the business climate – and about whether US higher education is sufficiently supporting the math and science requirements needed to maintain a strong and innovative US tech industry.”
More than 60 percent of technology leaders surveyed expressed concern about an “overhang” from the national debt negatively impacting the US technology industry – and 44 percent expressed concern about the quality and costs of higher education in the US and its impact on the competitiveness of the sector globally.
Emerging from the “Great Recession,” 62% of tech leaders and venture capitalists believe the fundamental model for building technology companies has been altered, and the majority of those individuals projected longer time to liquidity (e.g., IPO or M&A sale) for VC-backed companies. Approximately one quarter of respondents (24 percent) forecast that such an increased time to liquidity will lower returns, thereby reducing the number of venture funds and available venture funding for technology companies.
However, surprisingly, a strong minority, 38 percent, simply sees the capital markets in an ordinary economic cycle and predicts that over time the IPO, M&A and venture capital markets will return to norms.
“For many tech leaders, the big question is not whether an economic recovery is sustainable, but whether the business model for building tech companies has been fundamentally altered,” said Paul Hurdlow, Head of the Emerging Growth and Venture Capital Practice at DLA Piper.
The DLA Technology Leaders Forecast Survey also examined opinions about trends in cloud computing and social networking technology. A surprisingly large percentage of technology leaders (47 percent) doubt that social networking monetization opportunities justify current valuations. Even those who saw continued growth in social networking businesses (32 percent) also thought the industry would be defined by consolidation in 2010 as larger players absorb smaller companies and growth opportunities.
A strong majority (56 percent) of respondents expressed the belief that cloud computing will be pervasive in companies of all sizes within three to five years. The largest area of concern in cloud computing, perhaps predictably, was security. Close to half of all respondents (49 percent) believe that security concerns are the biggest issue slowing adoption of cloud computing.
The DLA Piper Tech Leaders Forecast Survey was conducted in late March and early April 2010.
In September 2008, as turbulent financial markets made headlines and business leaders wondered whether a recession was imminent, respondents to the first DLA Piper Tech Leaders Survey predicted a full-blown recession lasting until late 2009 or early-2010.
DLA Piper will examine further technology issues and trends in an October 2010 survey in conjunction with the DLA Piper Tech Leadership Summit, to be held in Menlo Park, California, on October 12, 2010. For further information or a copy of the DLA Piper Technology Leaders Survey Report, visit www.dlapiper.com.
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Peter Astiz, Partner, Technology Practice, DLA Piper, 650.833.2036
Dan Cahill, Media Relations, Greentarget Global Group, 415.522.3999