One of the most notable findings of the DLA Piper Technology Leaders Forecast Survey is the widely held belief that the economy has fully "turned the corner," entering a period of slow but steady economic growth. The survey, measuring the attitudes and perspectives of top executives within the technology industry, reveals that an overwhelming majority of technology business leaders (95 percent) expect continued growth for the economy for the remainder of 2012 and beyond.
This key finding is a positive sign from a group of business leaders who have accurately predicted the economic climate over the course of the recession and recovery. Business leaders' expectations of the recovery appear to be driven in part by their positive outlook for their own companies and firms. Approximately 82 percent of technology business leaders are predicting moderate growth in sales at their own enterprises. This is a notable improvement from a year ago, when 55 percent were projecting moderate sales growth and 22 percent were expecting flat sales growth.
Aligned with their expectations, Fortune 1000 and emerging growth tech companies are planning for increased hiring – with 67 percent reporting plans for moderate or strong increases.
"Tech leaders are clear and consistent in their projections: slow but steady growth for the global economy and moderately better growth for their own companies. They are much more optimistic now than they were just a year ago, but there is still a subtle caution in their voice," said Peter Astiz, partner and global co-head of DLA Piper's Technology Sector practice.
Respondents note the European debt crisis as a continuing drag on expectations for the global economy in 2012. Ninety-two percent of business leaders surveyed expressed concern about a continuation of the European debt crisis.
A Changing Business Environment for Emerging Technology Companies
In the span of a decade, from the bursting of the "Dot-com Bubble" through the "Great Recession" of 2007-2009, the operating environment for tech companies and their investors has continuously changed. The DLA Piper Technology Leaders Forecast Survey shows a solidifying opinion from tech leaders that, as a result of these changes, there is a "New Normal" in the model for building and investing in tech companies.
Approximately two-thirds of tech executives surveyed believe the operating environment has been permanently altered in some significant way – and driving that change is the slowdown in the IPO market. Despite IPOs from big names such as Facebook, Groupon, LinkedIn and Zynga, 75 percent of technology, venture capital and private equity business leaders believe that the IPO market will not return to historical levels.
As a result, 72 percent of tech leaders report that IPOs cannot be viewed as the optimal exit strategy for venture capital firms and private technology companies. Looking ahead, respondents say that companies must assume that M&A will be the primary exit route.
Tech leaders do not see foreign exchanges such as LSE/AIM and Hong Kong as a strong competitive alternative for technology companies as compared to the NYSE and Nasdaq, with only 26 percent of tech leaders seeing foreign exchanges as a competitive alternative. In addition, although there has been substantial publicity around secondary trading for some high-profile companies, there is still uncertainty how the secondary markets have impacted the IPO market: 31 percent of respondents think a growing secondary market has hurt the IPO market by allowing companies to delay their IPO, whereas 34 percent disagree with that sentiment.
"It's clear that the operating environment for emerging technology companies has changed significantly. Despite recent high-profile offerings, M&A will continue to be the primary exit strategy. This obviously has reverberations on emerging company investments, strategies and growth. However, we will have to see whether the "IPO On-Ramp" provisions of the US Jobs Act will provide impetus for an improved IPO market," said Peter Astiz.
Paul Hurdlow, co-chair of DLA Piper's Emerging Growth and Venture Capital practice, added, "Recent IPO's have reminded us of the potential value created by innovative business models and technology. We're encouraged that the need to facilitate growth capital investment and the desire to encourage entrepreneurial activity appear to enjoy bi-partisan policy support, and we're particularly interested to see the impact of the JOBS Act on next generation of technology start-ups. We also note that the US venture capital ecosystem continues to develop the majority of the world's leading emerging growth companies."
Most Promising Markets: China and the United States
Fifty-seven percent of technology leaders believe that China will surpass the economic production of the United States within the next 15 to 20 years. However, confidence in the Chinese economy has waned since 2010, when 72 percent of respondents felt this way. There also appears to be growing uncertainty about how easily the Chinese economy can successfully transition beyond a strong manufacturing-oriented economy to include a strong technology/innovation economy. Forty-one percent of executives believe that China will have difficulty transitioning to a technology/innovation economy, up from only 18 percent two years ago.
According to technology leaders, the United States remains the epicenter of the technology universe: 95 percent say the United States still represents the best environment for the creation, investment and growth in innovation and technology companies.
"Technology leaders see promise globally from Brazil and China, to India and the United States. What these survey results tell us are that among myriad opportunities, mobile and clean tech are the shining stars. It tells us that the excitement over the opportunities for growth in China is tempered by concerns about the ability to nurture an innovation economy. That although the United States is widely seen as the best environment for tech innovation, it is also challenged by increasingly competitive, educated and innovative emerging economies," said Rich Scudellari, co-managing partner of DLA Piper's Silicon Valley office.
The DLA Piper Technology Leaders Forecast Survey was conducted in March 2012. DLA Piper will examine further technology issues and trends in an October 2012 survey in conjunction with the DLA Piper Tech Leadership Summit. For further information or a copy of the DLA Piper Technology Leaders Forecast Survey Report, visit www.dlapiper.com/tech-leader-forcast-survey-q1-2012/.
(Press Release by DLA Piper)
