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Technology industry fund environment: Takeaways from Tech Connection


At a recent RSM Tech Connection Center event, a panel of investors shared their insights on the current state of the technology industry, related mergers and acquisitions (M&A) activity, the initial public offering (IPO) climate, what’s hot in technology funding activity, and more. The Center is a Washington, D. C. area venue for technology and life sciences executives to come together, share valuable insights and learn from other industry experts. The panel featured individuals representing seed, growth and private equity investors. Key takeaways from their discussion included the following: 

The market is healthy
Panelists expressed that the economy continues to be somewhat solid, and desirable technology companies are being competitively priced in the market. It’s a good time to be an entrepreneur and founder as early stage valuations are robust and climbing. Hot services in the technology space include businesses in the data or intelligence cybersecurity area, artificial intelligence, machine learning and cloud technology. Data analytics is an area trending up, as well as businesses in the health care information technology sector. Hot regions for technology companies include cities like Atlanta; Boston; Chicago; Washington, D. C.; Los Angeles; and San Jose, California, as the density of technology talent is often greater in those cities. 

M&A activity is on the rise in the industry. Panelists also indicated there is a tendency for many technology companies to delay or forego the IPO route due, in part, to healthy pricing during early and mid-stage business growth. Founders frequently are considering if it is better to sell at a desirable price now, or take the company public later. According to a recent article in The Economist, the technology industry is not alone in this decision to reconsider going public. “A big trend in American business is the collapse in the number of listed companies (in the New York Stock Exchange). There were 7,322 in 1996; today there are 3,671,” according to the article which mentions Airbnb’s less-than-anxious attitude about going public. In addition, the article indicates the “number of companies doing initial public offerings…has fallen from 300 a year on average in the two decades to 2000 to about 100 a year since.” 

The new administration has had little impact, but…
Panelists were asked what effect the new Trump administration has had on their portfolio companies. All agreed they’ve seen little impact thus far in the technology industry. However, one panelist indicated that if uncertainty continues about policy reform or other distractions persist for the administration and the Republican-led House of Representatives and Senate, this unsteadiness may have an impact on market confidence. In addition, concerns about the administration’s proposed regulatory changes, immigration changes, the border adjustment tax and other policy reforms could affect the overall confidence about getting deals done, funding businesses and more. It is a wait-and-see game, but for now, panelists were in agreement that there has been very little impact as a result of the new administration on technology company funding and dealmaking. 

The investor value-add
Beyond funding, panelists were asked what their portfolio companies gain from working with them. All indicated their value-add was their commitment to help scale the business for growth and build talent. Whether it’s connecting company leaders with other industry CEOs and CFOs, sharing best practices, fortifying operations, or readying the company to go to market, the panel emphasized their mission is to help their portfolio companies find success. 

For more information about the current state of the technology industry, M&A trends, deal volume and more, read the Q1 2017 Technology Industry Spotlight. Questions? Contact us

Related resource:
5 tips for technology companies when preparing for an IPO


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