Today we feature a guest post by Ken Scott, the Non-Executive Chairman at Westway Development Trust and a Co-Founder of Moncrief London. He is an entrepreneur and hands-on business manager who tunes up businesses for optimal performance. In this blog post, he muses on how best to invest in tech.
What Would You Do if You Had £50 Million to Invest in Tech?
I was asked this question by an acquaintance whose private equity firm is looking to place a few hundred million into investable propositions in the tech space. He told me he wasn’t finding it easy and to be honest, I was not surprised. The reason it is so hard? The old conventions and orthodoxies around technology just do not hold up anymore. The future is less clear than ever because as Benedict Evans put it, Mobile is Eating the World !!
We are in the “post PC” era and are witnessing the dramatic rise of mobile. The emerging tech plays are currently too small or too early stage but definitely different to anything the more orthodox private equity radar is likely to pick up. In the UK, most businesses that are large enough to be of interest to PE just do not embrace what is currently going on. There is a great deal of catch up as different sectors become increasingly aware of the threats that digitalisation and the convergence of tech and mobile present to their more conventional business models. As I will explain, the pace of change has accelerated to the point that it is virtually impossible to plan with any accuracy. Like trying to navigate a fast flowing river, the best we can do is be aware of the terrain and navigate as we go along.
So What is Going On?
13 years ago, Microsoft ruled the world through its operating systems completely dominating the corporate and personal workstations and PCs. Internet traffic; email, browsing, shopping etc was just beginning to take off. The computer hardware was not particularly portable and was kept either in corporate offices or up in the spare room of our homes. There was not a smartphone in sight and although dot com seemed exciting at the time, it now appears decidedly pedestrian.
Everything has changed since the launch of Apple’s iPhone in 2007. Since then, smartphone and tablet unit sales have risen dramatically from zero to around 750m sold worldwide in 2012. This is against PC sales, which at the peak in 2010 were 400m global units sold. PCs sales are now in decline. Smartphone and tablet sales by contrast, are set to top 1.25 billion by the end of 2013.
The advent of smart mobile devices means that the technology and mobile worlds are merging. Internet and media are being dragged along and the rapid growth of tablet usage is accelerating this phenomenon and changing everything!
Just think of the difference in scale and then think of the difference in usage.
350m sold in 2012; 1.6bn units in use, often shared and replaced every 4-5 years. These are semi-portable at best and used for email, web and web search.
750m units sold in 2012; 3.2bn mobile users, at least one per person and replaced every 2 years. Highly portable personal devices used for email, web, web search, apps, social, location, service integration, prediction, image recognition, etc etc…. And, you don’t leave home without it!
Today, Microsoft no longer rules and is probably in terminal decline. Tablets are now overtaking PCs, which points to the dynamics of mobile becoming our future.
So back to the question; if I had £50m to invest in tech, I would invest in businesses that were taking advantage of these macro trends in social behaviour through the increasing dominance of mobile. Businesses that are converging smartphone adoption with social media and their chosen proposition would be worth investigating.
There are a lot of smart enterprises out there but they are almost entirely early stage. The key capabilities for any investor therefore are the age-old ability to discern, coupled with some imagination. Is there a compelling proposition and, is the management team credible and considered able to deliver on what they promise? There will undoubtedly be failures but amongst the failures will be the few that succeed beyond anyone’s imagination.
What would you do if you had £50 million to invest in tech? Where would you put your investment? We’d love to hear your input in the comments below.