The Big Picture: Investment Trends and Themes

Last Wednesday I presented at an event organized by Janney Montgomery Scott, an investment bank, about the investment trends we are following and investing on.  l spoke about three large trends:

1.       The shift from offline to online in advertising and commerce

2.       The shift from on-premise to on-demand, or cloud-based, software

3.       The desire of corporations to utilize the data they generate or must access to.  This is big data

Oftentimes these areas intermix.  For example, some of the better campaign management applications used by online marketers are SaaS.  Online businesses are some of the largest data generators.

Within Internet we have been focusing on 2 areas: e-commerce and performance-based advertising.  The current economic environment favors the further growth of e-commerce globally.  We have continued to make investments in an area we call branded response that combines the sophisticated use of analytics to achieve low-cost customer acquisition and high per customer retention and Lifetime Value.  Thus far we have invested in 5 such companies in the US and China (Syndero, AccountNow, Zeo, Profex and Advanced Payment Solutions).  Even during the difficult past 12 months these companies have exceeded their financial targets and have grown by over 100% YOY.  For this reason we continue to look for companies that offer data, products or services that facilitate e-commerce. 

We perceive a huge demand for increasing the effectiveness of online marketing and advertising.  Online advertising is global, targeted, personalized and measured in ways that no other form of advertising can. Portfolio companies such as HomeAway, Turn and Sojern here in the US, as well as Elucido in India have been growing quickly because they provide differentiated and technologically advanced platforms.  We plan to continue investing in this sector looking for solutions that allow corporations to optimize their online advertising decisions and address post-sales customer engagement.

Cloud computing in all its incarnations (SaaS, PaaS and IaaS) and virtualization (of various layers in the IT stack) represent fundamental enterprise IT platform shifts and are attracting significant attention from corporations and investors.  SaaS applications, in particular, are being adopted by smaller and large enterprises because they provide superior TCO, faster deployment, and better overall value than their corresponding on-premise counterparts.  We have invested behind horizontal SaaS applications, for example business intelligence applications, and IaaS solutions such as Qualys.  More recently we started shifting our investment strategy towards vertical applications, particularly those offered by later stage companies.  For example, working with our healthcare IT team we have been looking for SaaS applications that allow payers to reduce costs, allow providers to enhance their revenue, and applications aimed at consumers.  Other verticals of interest include: energy, particularly applications that utilize the data generated by smart grids, logistics, and financial services and insurance.

Because the large IT vendors (Microsoft, IBM, SAP, EMC, etc.) are making significant investments  in cloud computing, we hesitate to aggressively invest in companies whose products will compete directly with those of the large vendors.  Private companies that develop cloud management solutions are of interest but today we see the space as being overfunded.  As it happened with other IT platform shifts, we anticipate that it will take a few years for cloud computing platforms to become established enough that will necessitate the appropriate management tools.

We monitor the adoption of server virtualization technology with great interest though we see few opportunities for new investments.  Despite the broad adoption of netbooks (particularly during 2009) we are skeptical about investments in client-side virtualization.  We believe that database and application virtualization may provide only selective investment opportunities.  However, we invested in Hytrust, a company that is developing security solutions for virtualized environments, because it combines security where we have been investing for several years and where we continue to see interesting opportunities with virtualization.

Data is becoming strategically important to enterprises as they become performance-driven.  It is also being generated in unprecedented volumes, particularly by internet portals, ad networks social networks, like Facebook, and e-commerce companies.  As a result, we are interested both in companies that can address the management and analysis of big data, as well as data companies that use technology to allow their clients to make better business decisions particularly in the areas of online marketing and advertising.

We have built broad experience (executive, client and partner networks, business models, technology models, etc.) in all these areas.  We will continue leveraging this experience in new investments we will be making in order to build them into successful and enduring companies.

Comments

[FI]

Interesting article. I work with this company and often visit their education center: http://education.fisherinvestments.com/ It has a lot of useful information and links to a number of investing books and articles.

[Malcom Wagon]

excellent tips here.Well done for sharing.