The U.S. economy is still sluggish, but venture capitalists, who spoke to an audience of nearly 150 investors, students, and faculty at Stanford GSB on Dec. 6, said the outlook for early- and late-state investing is bullish.
"Because rates are so low you're near the bottom of what it costs to buy money if you are a company," said Egon Durban, managing director of Silver Lake, a $14 billion private investing firm that has funded many technology-related companies. Returns, he said, are more than triple that of costs. "We are open for business."
Durban was a speaker at Financing Innovation, a daylong series of panel discussions sponsored by the Financial Times in partnership with Stanford GSB.
Not surprisingly for an event held in Silicon Valley, much of the discussion centered on the outlook for investors in high tech, and prospects for the "green economy." While there was some acknowledgment that not all lessons of the dot-com crash of late 2000 have been fully digested, and that the short-term prospects for investing in solar power have been somewhat dimmed by the Solyndra scandal, the overall tone was decidedly upbeat.
The day's first roundtable was entitled: Tech Bubble 2.0? Geoff Yang, MBA '85 and a founding partner of Redpoint Ventures, answered the question with a cautious note, saying, "The question of a bubble can only be answered in hindsight." But he quickly rattled off three factors that have changed since the dot-com era. He said the consumer market for internet- and mobile-related technologies has the potential to reach billions of customers, while 11 years ago the number of people regularly surfing the web was measured in millions. What's more, smaller companies are growing revenue at rates not seen before, while giants like Apple and Google, with stratospheric stock prices are not overvalued, Yang said.
Mike Volpi, MBA '94, a former Cisco M&A executive and now a partner in Index Ventures, said, "We're not in a bubble in the sense that it will pop. However, there are overvalued companies that have gone public recently and are already declining in value, but it will be gradual, not a pop."
Although the appetite of large businesses for new technology is huge, few startups are offering new products and services for business customers. But Workday, founded by Aneel Bhusri, MBA '93, is doing just that, and has become a darling of the Valley. Workday is developing business software that is distributed and run in what has become known as "the cloud." That means the software is hosted on off-site servers that are generally not owned or maintained by the customer. The customers' employees access that software via the internet. Workday breaks the mold in another way as well.
Unlike many entrepreneurs these days, Bhusri says he has no intention of selling his company to an Oracle or an SAP (his main competitors), and an IPO in 2012 is a possibility. He said he believes Workday can stay independent because it is more than a niche technology. Many of the startups that have been acquired are too narrow to survive on their own and need to be part of a company with a broader portfolio, he said in a one-on-one discussion with Richard Waters, West Coast managing editor of the Financial Times and a veteran technology reporter.
Steve Westly, MBA '83, of the Westly Group, has beaten the drums for clean technologies as both investor and politician. During a roundtable discussion devoted to clean energy, he deplored the Solyndra bankruptcy but maintained that the industry will turn around, and after a period of consolidation, a handful of solar companies will emerge as "household names almost akin to auto companies today."
Although many investors in solar companies have had to bear significant loses, Westly, a former California state controller, struck a contrarian note, saying: "Just remember this moment — everyone says dump solar companies. Now is the best time to invest, not the worst."
Another member of the green investment panel, Steve Jurvetson, MBA'95, managing director of Draper Fisher Jurvetson, a venture capital firm, was sharply critical of the government's handling of Solyndra, saying companies fail all the time, but the investment in the solar panel maker was particularly bad. "To spend $10 billion before you know if you have a product is kind of a risky proposition," he said.
Rapid changes in technology, particularly the internet, have lowered the cost of entry into the marketplace for many companies. "But sustainability is still a very difficult challenge," said George Foster, the Konosuke Matsushita Professor of Management at the business school who has studied (as well as run) high-growth companies. Traditional manufacturing companies, like General Motors, can take 20 years to lose significant value. But today's high fliers can lose value terribly fast, making the investment market that much more volatile, he said.
"Engaging consumers," something of buzz phrase in Silicon Valley, was bandied about at the conference and Foster, a native of Australia, managed to make light of it. He eats Vegemite, a uniquely Australian breakfast spread, every morning, he said, and has yet to engage with it.