dla piper tech leaders forecast survey, october 2012

7/31/2019 DLA Piper Tech Leaders Forecast Survey, October 2012

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DLA PiPer TechNOLOGY LeADersFOrecAsT surveY FALL 2012


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02 | DLA Piper Technology Leaders Forecas t Survey Q1 2012

DLA PiPer TechNOLOGY LeADersFOrecAsT surveY q1 2012

execuTive summArY

In the ace o global economic headwinds and amid a

high-stakes 2012 presidential election, technology

leaders ever ocused on the promise o the uture

are seeking clarityon the economic, regulatory and

political landscape.

This was the per vasive theme throughout DLA Pipers

ith Technology Leaders Forecast survey, which was

developed in conjunction with the irms 2012 Global

Technology Leaders Summit.

Will greater economic cer tainty ollow the outcome o

Novembers election? What is the direction o tax policy?

Will the nex t administration ease regulations or increase

the regulatory burden? How will Chinas role in technology

development and nancing evolve? Will the IPO market

cool down or heat up? What are the most promising and

challenging areas or the technology economy?

These are just a sampling o the issues addressed in

DLA Pipers latest sur vey o the major trends, challenges

and opportunities conronting the technology industr y.By a 3 to 1 margin technology leaders believe

President Obama will be re-elected on Nov. 6th.

However, most are very skeptical that another term under

his administration would be a positive development or

the industry.

In act, hal o technology leaders who think President

Obama will earn re-elec tion think it would be a negative

development or the sector. Most 64 percent believe

that Mitt Romney s e lec tion would be better or the

technology industr y. This st ands in st ark contrast to the

2008 survey when the majority (60 percent) otechnology execut ives signaled that a Barack Obama

victory would be a positive development or the

technology industr y.

These executives and investors, however, have more on

their minds than just pol it ics . There are under lying

concerns about global economic conditions and the

added burden o growing regulation that hinder their

ability to access capital and build new businesses.

Economic uncertainty was listed as the most signiicant

barrier acing the IPO market and was a signiicant actor

in impeding the success and ormation o technology

start-ups.

Despite these challenges, technology leadersexpectations or growth are cautiously optimistic, with

most expecting moderate sales and hiring growth. Most

subscribe to a belie in a new normal or growth

steady, but slow.

Key highlights o the survey include:

Wat wold a ond-t Pdnt Obaa

an fo t t ndty? Most respondents

think voter s will re-elect President Obama, but

60 percent doubt that his policies will impact

the technology indus tr y in a positive way.

Sixty-our percent o respondents think Mitt Romneywould positively impact the technology sector, while

jus t 41 percent o respondents think a second-term

President Obama would positively impact it.

i pat ty dtnd fo o

glaton? A strong majority (78 percent) o

respondents think the 2012 political debate has hurt

the reputation o the pr ivate equity industr y, and

most (65 percent) think it likely will result in more

regulation o the industr y.

Wold fdal ta na t tntnt and al? A majority (60 percent) o

respondents think the expiration o the Bush-era tax

cuts will hurt investments in the technology industry;


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www.dlapiper.com | 03

while very ew (seven percent) think it will help.

However, perhaps counter to conventional wisdom, a

signiicant minority (33 percent) think the Bush-era tax

cuts will have no direct impact on investments and

growth in the technology industry.

Wat t otloo on ng and al? Techexecutives still think their companies will experience

sales growth and plan to hire new employees during

the nex t 12 months , albei t at a moderate rate

compared to historical growth. Bigger technologycompanies are even more conservative in estimations

o both their sales and hiring.

Wat a t ot pong oppotntfo t ntpn and nto?

Respondents pegged mobile computing, cloud

computing and big data as the most promising

technologies or inves tor s and entrepreneurs. Venture

capital executives were more likely than other tech

executives to rank big data as promising and

tended to rank gaming a s less promis ing.

sold pay pol b glatd? More than80 percent o technology executives say the

government should not get involved in regulating

privacy policies, with 50 percent saying the industry

should take the lead in developing consensus and

policies on privacy.

can cna tanton to an nnoaton

onoy and pat t global tnology

to? Most respondents observed that China is

tr ans it ioning away rom a produc tion-only economytowards an economy oriented towards both the

production and consumption o goods, including

technology. However, there are continued mixed

signals regarding the countrys ability to evolve into a

hub or innovation and technology development. Only

10 percent o respondents expect China to be a major

contributor to technology development within the

next three years.


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eLecTiON 2012: TechNOLOGY LeADers

cAsT Their vOTe

The DLA Piper Technology Leaders Forecast Sur vey

ound a strong majority, 76 percent, o technology

business leaders think voters will re-elec t

President Obama in November. These results are

echoed by Intrade, a predictions marketplace, which also

has President Obama as roughly a 3-to-1 avorite to

capture re-election.

However, most technology business leaders are very

skeptical that a second term or the Obama

administration would be a positive development.

Almost 60 percent o respondents do not eel

President Obamas re-election would have a positive

impact on the technology economy, and two-thirds o

those executives bel ieve the impact would be negat ive .

By comparison, 64 percent o respondents think

Mitt Romney would positively impact the technology

sector.

The partisan tables have turned since the 2008 election,

when the survey ound that nearly 60 percent otechnology executives bel ieved that, then Senator,

Barack Obama would have a more positive impact on

technology development and investment than would h is

Republican challenger, Senator John McCain.

It is worth noting that, during the US mid-term elections

in 2010, these same technology leaders accurately

predicted the Republican takeover o the House o

Representatives.

Barack Obama

Mitt Romney

76%

W bv w w

t 2012 Pt ct?

24%


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TO WhAT exTeNT DO YOu AGree Or DisAGree WiTh The FOLLOWiNG sTATemeNTs:

0

50

100

150

200

250

46

8

14

55

74

61

40

45

43

46

I President Barack Obama wins a second

term, i t will be a positive development or the

technology industr y.

I Governor Mitt Romney wins the White

House, it will be a positive development or

the technology industr y.

Agree

Somewhat Agree

Neutral

Somewhat Disagree

Disagree


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06 | DLA Piper Technology Leaders Forecast Survey Q1 2012

recurriNG cONcerNs ON TAxATiON,

DeFiciTs AND reGuLATiON

Regardless o the elections outcome, it seems clear that

what technology leaders want out o Washington is

greater certainty about regulation and tax policy. Those

concerns, particularly on regulation, suraced repeatedly

throughout the sur vey.

Depending on who controls the White House, and the

composition o Congress, a ter the November elections,

the Bush -era tax cu ts could be extended , made

permanent, or rolled into a broader tax reorm package.

Most respondents, 60 percent, think allowing the

Bush-era tax cuts to expire would negatively impact

investments in the technology sector.

However, perhaps counter to the conventional wisdom,

a notable minority (33 percent) o technology business

leaders think expiration o the Bush-era tax cuts will

have no direct impact on investments and growth in the

techno logy indus tr y. Eight percent think the expiration

would have a positive impact, presumably thinking that it

would positively impact ederal iscal stability and deicitreduction.

In a previous survey, when asked directly, 30 percent o

techno logy execut ives said tha t they bel ieved increased

government revenues generated via the expiration o

these tax cuts would help reduce de ici ts and improve

general economic conidence.

Marginal personal tax rates are not a primary

actor that guide technology investment decisions.

Technology leaders are more concerned with

the l ike ly st abi lity and potentia l o an investment ,

the corporate tax r ate , and the broader economic

and regulatory environment. O course, evaluating

the tax impact does come into the equat ion , but

ultimately people invest in technology companies

because they think they can achieve a positive

return. Pt Atz

Signiicant negative impact

Somewhat negative impact

Neutral/no impact

Somewhat positive impact

Signiicant positive impact

44%

33%

4%3%

15%

Wt pct w t

pt t B-

T Ct v tc

t vtt?


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When given the oppor tunity to comment about the technology environment in general, respondents sounded o

about the burdens brought about by regulation, and the cost o compliance, more than any other issue.

WhaT are The BiggesT legal or regulaTory issues aCing TeChnology ComPanies?:

rt rt rpt rsb s ov-t

T ucttith1B V ivttlwt Ptt T sct

The ollowing verbatim responses illustrate the

regulatory and compliance burden expressed by business

leaders across the technology sector:

Cost o regulatory compliance

Dodd Frank requirements Cost o legislated health care requirements: Too many public reporting requirements Far too high burden o compliance Sarbanes Oxley is still too onerous

The potential o having to manage to various statedata security requirements

A strong majority (78 percent) o respondents also

believe that the presidential campaign dialogue centered

on private equity has damaged the reputation o the

private equity and venture capital industry, and

65 percent predicted this ocus could lead to new

regulation.

Among private equity managers and venture capitalists

speciically, the concern is even deeper: 93 percent think

the presidentia l race has damaged the reputation o their

industry.


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cONFiDeNT ON The FuNDAmeNTALs,

BusiNess LeADers see sTeADY BuT sLOW

GrOWTh AheAD

Despite the aorementioned concerns, technology

leaders are cautiously optimistic on the undamentals o

their own businesses. The indust ry leaders sur veyed

overwhelmingly expected both sales and hiring to

increase, but generally at verymoderate rates. The wild

gyrations on revenue expectations and sta ing that were

seen in the 2008 and 2010 surveys with technologyleaders are no longer present.

In October 2008, at the very outset o the inancial crisis

and ensuing Great Recession, 75 percent o

respondents reported that their businesses had been

adversely aected by receding economic conditions, and

almost 70 percent o respondents expected revenues to

decline as a result. In October 2010, respondents were

shiting their priorities and expec tations. Guarding

against the harmul eects o recession was quickly

becoming less important. Instead, they were ocusing on

growth amid an environment that was rie with r isks anduncertainty, but also with opportunities upon which to

capitalize.

Now, in the 4th quarter o 2012, respondents seem to

have developed a broad consensus they are settling in

or a period osteadybut slowgrowth.

Seventy-two percent o technology executives expect

their sa les to increase over the nex t 12 months, with

55 percent speciically estimating moderate sales growth.

Another 16 percent reported that they expect no

change in their sales in the next year, which appears to

urther signal the reser ved nature o expectations orgrowth.

Sotware company executives today are the most

optimistic on sales, according to the survey, with

47 percent o them expecting a signiicant sales increase.

Companies o $1 billion or more were more

conservative in their sales orecasts, with 66 percent

expecting only moderate increases.

Revenue expectations, o course, impact staing

decisions. In 2008, almost two-thirds o respondents said

they expec ted their revenues to decline as a resul t o

that year s economic environment . That year,

respondents, especially those rom large companies,

were predicting layos. Since 2010, expectations orhiring have loated at moderate levels. O note, the

percentage o respondents who said their irms planned

no hiring has decreased substantially, while the

percentage o respondents who said their irms plan to

hire moderately ticked upward.

In the 2012 survey, 50 percent o executives report plans

or moderate hiring increases over the next 12 months

and 10 percent are planning or s igni icant increases ,

particularly at smaller enterprise and sotware

companies. Twenty-seven percent expect no notable

changes in their staing levels. Again, larger companieswere more restrained in their plans or hiring.

Forty-nine percent are planning moderate increases in

hiring, and 10 percent are planning moderate decreases

in hiring.

The impact o these moderate expectations in the tech

sector says volumes about job growth in the larger

economy: most net job creation or the past 30 years has

come rom star tup irms.

Star tups arent every thing when it comes to job

growth. They are the only thing. They are theengine o innovation and the tech economy, said

Rich Scudellari, par tner, DLA Piper.


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10 | DLA Piper Technology Leaders Forecast Survey Q1 2012

Signiicant increase

Moderate increase

No change

Moderate decrease

Signiicant decrease

Unknown

16%

5%

1%

7%

55%

16%

hw pct

cp t t v

t t 12 t?

2012:

12%5%

70%

Signiicant increase

Moderate increase

No change

Moderate decrease

Signiicant decrease

Unknown

12%

hw pct

cp t t v

t t 12 t?

sp 2012:

Expect strong increase

Expect moderate increase

Expect no change

Expect moderate decrease

Expect strong decrease

55%

23%

5%

16%

hw pct

cp t t v

t t 12 t?

2010:


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1%

50%

Signiicant increase

Moderate increase

No change

Moderate decrease

Signiicant decrease

Unknown

10%5%

27%

8%

hw pct

cp tf/ t

t v t t 12 t?

2012

8%6%3%

59%

Signiicant increase

Moderate increase

No change

Moderate decrease

Signiicant decrease

Unknown

24%

hw pct

cp tf/ t

t v t t 12 t?

sp 2012

Expect strong increase

Expect moderate increase

Expect no change

Expect moderate decrease

Expect strong decrease

41%

43% 9%2%

4%hw pct

cp tf/ t

t v t t 12 t?

2010:


12/18


exAmiNiNG chALLeNGes TO TechNOLOGY

sTArTuPs AND The iPO mArkeT

According to a report by the US Census Bureau, the

business startup r ate has allen to a low o eight percent.

Thats down rom a high o 13 percent in the 1980s and

a rate o 11 percent as recently as 2006. The study also

ound that irms rom one to ive years old now account

or 35 percent o all businesses, as compared to

approximately 50 percent in the 1980s.

In the span o a decade, rom the bursting o the

Dot-com Bubble through the Great Recession and

into this subsequent period o tepid economic growth,

the oper ating environment or st ar tup tech companies

and their investors has changed.

Recent DLA Piper surveys have shown a solidiying

opinion among technology leaders that there is a

New Normal in the model or building and investing in

star tup technology companies. Approximately two-thirds

o executives surveyed believe the operating

environment has been permanently altered in some

signiicant way. Helping to drive that change are changes

in the IPO market.

In DLA Pipers April 2012 survey, nearly 75 percent o

technology, venture capi ta l and private equi ty leaders

stated that they believe the IPO market will not return

to the histor ica l highs o the 1990s and 2000s.

The reduction in IPOs has broader implications, reducing

the number o dramat ic home runs or venture cap ital

investors and lowering overall returns. Fewer IPOs also

means ewer small- and medium-size public technology

companies which traditionally have been the acquirers

or other technology companies, urther diminishing exit

opportunities and returns.

More than 60 percent o technology executives said the

tr adi tional venture capi ta l model had been permanently

altered as a result o these and other actors.

Directly to this point, in the 2012 survey, when asked to

assess the greatest challenges acing technology st artups,

respondents ranked access to capital as the primary

challenge. Fit y-one percent ranked access to capital as a

major concern, and only six percent did not see it as one

o the major challenges. Concerns about the overall

tepid economic environment and the avai lab ili ty o

quality and experienced talent rounded out the top

challenges or technology star tups.

Entrepreneurs were more likely to rate access to

capital as the top challenge, whereas the venture capital

and private equity communities were more likely todescribe the economic environment and

demonstrating business value as the biggest challenges.

Obviously, these barriers oten east on one another.

Capital can be diicult to access precisely because o

economic uncert ainty, and IPOs and venture investments

can go awry when tough economic conditions prevail.

rANk The BiGGesT chALLeNGe FAciNG

TechNOLOGY sTArTuPs:

1. Access to capital: 2.492. Economic outlook: 2.56

3. Access to quality talent: 2.98

4. Uncertainties regarding patent/IP enorcement: 4.23

5. Need to demonstrate valid business model: 2.74

rANk The BiGGesT chALLeNGe FAciNG

The us iPO mArkeT:

1. Uncertain economic conditions: 2.37

2. Recent lackluster perormance o major IPOs: 2.433. More attractive M&A exits: 3.44

4. Over regulation: 3.90

5. Monetization challenges or Social Media and Mobile

companies: 3.95

6. Competition rom non-US exchanges: 4.91


13/18


The BiG OPPOrTuNiTies: cLOuD

cOmPuTiNG, mOBiLe cOmPuTiNG AND

BiG DATA

Despite challenges, technology leaders are optimistic and

orward-looking by nature constantly seeking the next

big idea, the nex t big innovation.

When asked what technology sectors hold the most

promise or entrepreneurs and investors in the near-

ter m u ture, respondents ranked (1) mobile computingand (2) cloud computing as the most promising, ollowed

by (3) big data.

When asked to look ur ther out on the hor izon, and

comment on the most promising under the radar

techno logies , business leaders mos t o ten mentioned

mobile computing and technologies, big data, green

energy technologies, security sotware and technologies,

and nanotechnology.

WhAT AreAs OF The Tech ecONOmY Are

mOsT PrOmisiNG FOr eNTrePreNeurs AND

iNvesTOrs?

1. Mobile computing: 2.32

2. Cloud computing: 2.51

3. Big data : 3.10

4. Enterprise sotware: 3.91

5. Social media: 4.49

6. Gaming: 4.64

WhaT under- reCognized TeChnology areas are like ly To haVe The BiggesT imPaCT on The

TeChnology seCTor in The nexT iVe years?:

B dt mb Cct dvcg e etp stw

l scc ntc

Pctv atc st sct


14/18


chiNAs PrOGressiON As A suPer POWer

iN The GLOBAL TechNOLOGY iNDusTrY

Recent DLA Piper surveys have uncovered a growing

uncertainty about how easily the Chinese economy can

successully transition beyond a strong manuacturing-

oriented economy to include a strong technology and

innovation economy. In 2012, 41 percent o execu tives

predicted that China will have diiculty transitioning to a

technology and innovation economy, up rom only just

18 percent two years ago.

Technology leaders view China as indispensable to the

manuacturing o technologies (91 percent reporting); as

a key market or technology sales (81 percent reporting);

and increasingly as a source or inancing technologies

(45 percent reporting).

However, respondents were less decisive on Chinas role

as an innovator and developer o new technologies: 35

percent said within the nex t ew years China would have

a somewhat important impact on global technology

innovation and development, while 27 percent said they

did not expect China to have any meaningul impact in

the sec tor in the near-term. Only one in ten bus iness

leaders expect China to be a major contributor to

technology development and innovation within the nex t

ew years.

From the respondents perspective, s tronger intellectual

property protections (83 percent reporting) and a morerobust inrastructure that supports entrepreneurship

(43 percent reporting) are needed or China to spur the

growth o it s technology sector.

Chinas greatest assets to the development o an

innovation economy are its sheer market size, large

amounts o capital and a large, skilled workorce,

according to these same leaders.


15/18


WhAT imPAcT WiLL chiNA hAve ON The GLOBAL TechNOLOGY iNDusTrY iN The NexT

FeW YeArs WiTh resPecT TO:

0

50

100

150

200

250

132

65

13

3

24

73

57

53

6

19

91

62

36

4

75

102

26

6

2

Manuacturing Development o new

technologies

Financing o technology

companies

Market or technology

products and services

Very Important

Somewhat Important

Neutral

Not Very Important

Not at all Important


16/18


Global

economic

conditions

Competition

rom the US

Concerns

regarding

intellectual

propertyprotection

Perceptions o

Chinese

technology

Technical

prociency o

local talent

Inrastructure

that osters

entrepreneurship

Free fow o

capital

WhAT Are The BiGGesT ThreATs TO GrOWTh OF The TechNOLOGY secTOr iN chiNA?

(check ALL ThAT APPLY.)

0

20

40

60

80

100

44

20

83

43 4439

17


17/18


meThODOLOGY

In late September and early October 2012, DLA Piper,

the inte rnational law irm, dis tr ibuted its Technology

Leaders Forecast Survey via e-mail to a group o

thousands o senior execut ives and advisors in the

technology industr y, including CEOs, CFOs and other

company oicers at technology companies, as well as to

venture capitalists, entrepreneurs and consultants.

The 2012 survey is the ith such technology marketanalysis developed by DLA Piper, with the last

survey issued in the Spring o 2012 and the inaugural

survey issued just prior to the recession in

October 2008.

Respondents were asked a series o questions and

provided multiple possible responses; they were also

given the opportunity to elaborate on their answers with

direct commentary.

Due to rounding, all percentages used in some questions

may not add up to 100 percent. Percentages in some

questions may not add up to 100 percent because

respondents were asked to check all answers that

applied. A ew minor edits were made to verbatim

responses to correct spelling mistakes, verb tense, andpunctuation.

For urther inormation on the study and its

methodology, please contact [contact].


18/18

www.pp.c

ABOuT us

DLA Piper is a global law irm with lawyers across

the Americas, As ia Paci ic, Europe and the Middle Eas t.

From the quality o our legal advice and business insight

to the e iciency o our legal teams, we bel ieve that

when it comes to the way we ser ve and interact with

our clients, every thing matters.

FOr mOre iNFOrmATiON

To learn more about DLA Piper, visit www.dlapiper.com

or contact:

Pt Atz

T +1 650 833 2036

[email protected]

DLA Piper is a global law rm operating through DL A PiperLLP (US) and aliated entities. For ur ther inormation please reer to www.dlapiper.com. Note past results are not guarantees

dla piper tech leaders forecast survey, october 2012

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