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December 28, 2006

2007 BostonVCBlog Predictions

Hope everyone is enjoying their holidays.  As food for thought, as I did last year, I submit a few predictions, looking ahead to 2007:

1) NYC:  Imbalance No More.  There is a huge VC-entrepreneur imbalance when comparing New York City to its little parochial cousin, Boston.  Although the population difference is a stunning 14x (8.2m NYC residents as compared to 0.6m Boston residents - and NYC is growing while Boston is shrinking!), there are far more venture capitalists in Boston than NYC and, illogically, many more VC dollars get poured into MA than NY.  This imbalance can't last.  Although NYC VC firms have to compete for talent with far more hedge funds, private equity shops and investment banks than their Boston brethren, 2007 is the year where the NYC VCs and start-ups begin to flourish and make their mark as a credible, top 3 (on its way to #2?) VC-entrepreneur market cluster.

2) Vietnam as the Next Frontier.  After watching the country's economic development over the last few years through the lens of our nascent fund, IDG Ventures Vietnam, I received a call the other day that served as the catalyst for this prediction.  A Harvard professor wanted my help connecting to our team there as part of her leading a trip to Vietnam with tens of top-tier limited partners to scout out the investment opportunities.  The combined funds under management of this group is in the tens of billions of dollars.  Vietnam is a fascinating country - it has a population of nearly 100 million people, one-third of the United States, and an average GDP per person of $3,000 (as compared to $42,000 for the United States) growing at 8-10% per annum - the second fastest economy in Asia after China.  With its entry into the World Trade Organization (WTO) in November 2006, Vietnam is well-positioned in 2007 and beyond to become the next China or India - a low-cost center for Western and Asian businesses to manufacture and build.

3. Laptops No More - The Mobile Phone Dominates.  At some point in everyone's life, you realize that you are an old fogey.  For my 30-something peers who grew up, like I did, with the personal computer and laptop, that point in time is 2007.  This is the year that the mobile phone will be declared the absolute dominant computation and personal device for the next generation.  Today's teenagers are using their phones to text, chat, Skype, IM and decidely not sitting at desktop computers.  Ringtones and wallpapers are cute (and, yes, now a multi-billion dollar business), but we ain't seen nothing yet when it comes to the range of future applications, content, community on mobile.  With the number of mobile phones now over 2 billion, the advent of video over mobile networks, Wi-Max and dual-mode phones coming into play, municipal wireless networks being built and devices getting more powerful thanks to Moore's Law and nanotechnology, these cute devices are becoming truly ubiquitous, powerful computation tools.

That's all for now.  See you in 2007!

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When you start doing all your blog posts and term sheets on your cellphone, I'll believe #3... :-) I say laptops still have a long life ahead. Desktops, yes -- please die! I haven't owned one in almost ten years, and have very few peers who ever use one.

cheers,
Graeme

I don't agree with you about number one, NYC is still number 5 on the top places for deals in the US. See the money tree for more details.

http://www.pwcmoneytree.com/moneytree/nav.jsp?page=region

I also think NYC will only succeed in growing its tech deals when there are enough engineers there. That's not to say it will not succeed. But I thought this list of cities with the most educated people in the country was interesting.

http://money.cnn.com/magazines/moneymag/bplive/2006/top25s/educated.html

Silicon Valley and Massachusetts are the two top places to invest because of people. Your right NYC city has numbers but does it have sufficient engineers?

On your #2 prediction, I'm Asian, in Singapore. A business associate told me recently that the cost of public broadband internet connection in Vietnam is only about US$0.12 / hour. Furthermore anyone can connect to the network with their laptop, and many operates 24/7. It shows how much the Vietnamese government wanted FDI. The last time I was in Ho Chi Min city was 1996, almost 10 years now. Today, one of my friend have just completed a shopping mall project down town, with state of the art bowling alley, movies and food court. But having said that, I do not think Vietnam will be the next frontier in 2007. No doubt there still are lot's of investment opportunities with WTO, and some sectors are opening up for foreigners like education and training etc, but still not quite the "Next frontier" yet, if we compare with surrounding countries like China, India, Malaysia, Thailand, Indonesia, and Singapore.

My reasons : firstly is about the political stability, second about the currency systems (the black market), third, about infra-structures like transportation, industry, power etc., fourth about the labour market, the skills and languages and finally about regulations and laws. Vietnam might be a place to consider if we look at Vietnam solely as a low cost manufacturing facilities for companies from the States or Europe or even Asia. But this point alone is not sufficient to make Vietnam as the next frontier because China and India can still offer their low cost advantages with better political stability, currency controls, infra-structures and regulations. Furthermore China's is catching up fast in technology development and research. My bet for 2007 is still on China for low cost advantage, and S.E. Asian countries like Singapore, Thailand and Malaysia for high value investments such as bio-technology etc.

On #3 prediction, I could only agreed that mobile phone will always be part of our lives now, just like eating and sleeping, but in no way can it replaces the laptops or desktops or computers in whatever form. My views are functionality and cost. Hence mobile phones would most probably compliment the laptop but never replaces.

On your #2 prediction, I'm Asian, in Singapore. A business associate told me recently that the cost of public broadband internet connection in Vietnam is only about US$0.12 / hour. Furthermore anyone can connect to the network with their laptop, and many operates 24/7. It shows how much the Vietnamese government wanted FDI. The last time I was in Ho Chi Min city was 1996, almost 10 years now. Today, one of my friend have just completed a shopping mall project down town, with state of the art bowling alley, movies and food court. But having said that, I do not think Vietnam will be the next frontier in 2007. No doubt there still are lot's of investment opportunities with WTO, and some sectors are opening up for foreigners like education and training etc, but still not quite the "Next frontier" yet, if we compare with surrounding countries like China, India, Malaysia, Thailand, Indonesia, and Singapore.

My reasons : firstly is about the political stability, second about the currency systems (the black market), third, about infra-structures like transportation, industry, power etc., fourth about the labour market, the skills and languages and finally about regulations and laws. Vietnam might be a place to consider if we look at Vietnam solely as a low cost manufacturing facilities for companies from the States or Europe or even Asia. But this point alone is not sufficient to make Vietnam as the next frontier because China and India can still offer their low cost advantages with better political stability, currency controls, infra-structures and regulations. Furthermore China's is catching up fast in technology development and research. My bet for 2007 is still on China for low cost advantage, and S.E. Asian countries like Singapore, Thailand and Malaysia for high value investments such as bio-technology etc.

On #3 prediction, I could only agreed that mobile phone will always be part of our lives now, just like eating and sleeping, but in no way can it replaces the laptops or desktops or computers in whatever form. My views are functionality and cost. Hence mobile phones would most probably compliment the laptop but never replaces.

Predictions, predictions...
#1 - Boston continues to be a center of innovative thought due to education advantages. (Sciences including math, and arts) Of course there are quality engineers in NY (from RPI,RIT), but many already work for IBM (Hawthorne research center, etc). New Yorkers will focus on M&A and high finance work that is nonexistant in Beantown. Figuring out real money placement is too much hard work when you have program trading platforms. Boston and Sand Hill continue to dominate, with Atlanta and the Carolinas continuing to be growth areas with displaced Bostonians.
#2 - Love the Vietnam idea. Delivery for French speaking economies especially. May be a bit leading for 2007 as I think companies are still getting their delivery centres humming in India, China and maybe BRZ or ARG in Americas. And don't forget Romania and Bulgaria as new EU states.
#3 - I agree with the concept that the mobile generation is coming, but laptops are still needed. Computing power on mobile devices will catch up no doubt, but managing a complex spreadsheet on a smaller device is simply impractical (screen size). Personally, my cell phone is terrible. My device itself is junky and the sound quality and service are awful. (My wife's doesn't even work at the local Stop&Shop) The service plans currently on offer by the big players are overpriced and make you buy more than you need/want. How about a phone that works well at a reasonable price. Providers should stop trying to distract from their poor service (sound quality, billing, network availability) with junky cameras and MP3 players. Consider #3 for me a wish and not a prediction.

All the best in 2007!

jeff, nice post. i heartily agree with your view about nyc and the likelihood of its rise as a start-up haven. being an investor in several nyc-based start ups (including the one i current run), i can attest to the fact that there are lots of great engineers around, some from Wall Street, some from other cities whom are willing to relocate, some from universities. bottom line - the inexorable rise of nyc as a start-up mecca is afoot, and closer integration among start-ups, universities and vcs will only hasten the effort. thanks, roger

Predictions of the VC market are extremely interesting. Predictions can focus on varying dimensions, including:

1) Investment Forms - VC and its relationship, including competitive aspects, with private equity, hedge funds, angel investors etc.

2) Industries and sectors - Alternative energy (including "2nd silicon revolution", solar), Web 2.0 and community, biotechnology and healthcare, etc.

3) Geographrical regions

4) Realtionship of capital investments to monetary policy, financial markets and also geopolitical events.

5) Emerging markets and market forces and trends, driven by demographics, population, weather etc.

6) Predictive models - including automated trading, collective intelligence, AI etc.

and more.

Success is multifacted and involves integrated solutions across a diverse set of relevant variables.

Regarding #3 - Yes, but feeling is it will be a mash-up of next generation cell phone with something like the Nokia N800. Want to the mobility, connectedness, and use model of cell phone (e.g. dial a phone number) combined with mobility, connectedness and HCI of a laptop. Again I see the Nokia N800 as a very interesting device, combined with an community developing for the platform, moving us in the right direction.

Number 3 while obvious is dead-on. by 2012 the "phone" however it is defined will be central to everyone's life - it will contain:
Communication
Media
Money
Identification

I disagree with #1 too.

Back before I started my company, I was thinking of moving and was looking at various places in the Northeast. I of course needed a job. Boston had easily several times the number of tech jobs advertised than New York, and more interesting ones at that.

In the words of Paul Graham (yeah, I know he's over-quoted but this is a good one): to have a startup hub you need two things, money and geeks. New York, he observed, has the former but for some reason not the latter. Boston and San Francisco have both, so they're America's startup hubs.

You'd have to get more geeks to go to NYC to make this happen.

Adam, I have been reading some interesting reports about Massachusetts since making my comment up above.

Have you seen this index research, it gives a bit of dismal setting for the Massachusetts technology economy http://www.mtpc.org/institute/research/index.htm.

Also the latest issue of Mass High Tech indicates that New England VC deals are at an all time 9-year low. Though I would not be too worried we are still 2nd behind Silicon Valley.

What needs to be done to revive or grow the area?

John:

I have found two things to be true about Boston/Massachusetts: the VCs here seem to be a little more conservative about giving out deals than their counterparts in the other bay area, and the entrepreneurs seem to be more conservative about taking them. There are a lot of successful bootstrappers in this area, and from what I've seen this appears to be the dominant philosophy.

California seems to lead in VC activity. I think that for whatever reason both the VCs and the founders in California are looser with making deals. It might be a bit more of a risk taker culture, or maybe the sun does something to your brain... who knows. :)

http://radar.oreilly.com/archives/techstartups.jpg

Note New York's position. It's not about raw population, but raw population of innovator/entrepreneur types.

Boston would have to lose quite a bit or Seattle's activity would have to double for Boston to lose its second place.

As for how to grow the area...

Infrastructure is *not* the problem. Boston has plenty of resources in the academic sector and has a lot of good resources for entrepreneurs.

The problem is culture and entertainment of the sort that young neophile innovator types like, or rather lack of it.

Now granted Boston has tons more culture than most of the country, but it still lags far behind San Francisco in areas like music, entertainment, night life, art, and other things that smart young people like. Smart young people are therefore a bit more drawn to San Francisco than to Boston. It's probably a more fun place to live.

Here's my advice for growing Boston's tech economy and startup culture:

Run the T late, 24 hours on weekends if possible. (I know the system is old, but it could be done. You could also charge more at night to make up the cost with the new electronic fare collection equipment.)

I have no idea how you'd accomplish this, but I think that a better and more diverse local music scene would help. San Francisco has everything imaginable: rock, indy, techno, hip hop, industrial, weird ambient noise, etc. Boston seems to just have a lot of bland indy rock bands.

Tone down some of the local cultural conservatism in general. It's ok if people have fun.

Cultural conservatism? Yeah. Massachusetts might have gay marriage, but beneath all that academic liberalism lies a somewhat stuffy puritan heart. Compare San Francisco's youth culture with Boston's. There's a reason for that.

Smart creative people hate stuffiness. Clear the air a bit and get a little more happening on the culture side and I bet we'd edge up to 2/3 of where San Francisco is within a decade.

Boston has plenty of infrastructure. It's all about the secondary contributing factors at this point.

Adam, maybe I am wrong but I thought Palo Alto not San Francisco is the center of Silicon Valley? We would have to split out the number of start-ups by each city and county in the bay area, but I don't think the focus is in San Francisco unless you are thinking of biotech's, and that is because of the city's strength in teaching hospitals.

Though for Californians driving 50 miles up to the city does not mean much. I used to live in San Francisco and Redwood City and drive the 150 miles to Fresno to visit friends there for a weekend hike in Yosemite.

I think you make a strong argument though, however I think it’s a combination of things; the climate, the great outdoors and as you say the allure of the City by the Bay.

I love the idea of keeping the T open 24 hours. How about a pilot project along the red line, or the University line as it should be called with MIT, Harvard and Tufts sprinkled along its western portion. Plus the red line leads to Hwy 2 and Waltham, the city with the most tech jobs in the state after Boston.

Here are some numbers from a March 31 - April 2006 Mass High Tech article on the top 20 New England tech employers.

Boston 36,024
Waltham 31,465
Cambridge 20,585

The Redline would also cover Cambridge as well.

Vietnam is not as bis as China, but completely next frontier after China.You can see the craze of Vietnam stock market recently http://ftalphaville.ft.com/blog/2007/02/21/2636/stock-market-mania-grips-vietnams-middle-classes/
Number of internet users: http://www.telegeography.com/cu/article.php?article_id=11282

Interesting debate. On #3, if you are ready to take a stance, you might like to join this one:

http://www.gottabet.com/bet/2245-laptops-more


PS: I'd happily create another one for #1 or #2 if anyone is interested, and keep the discussion going while taking stances.

I have been to Vietnam a few times and love it so much that I just have to keep going back. The country is sobeautiful, the weather is lovely and the people are so friendly. Thanks for this information too. Ahhhh..pleasant memories.

Great Information and post! It is very informative and suggestible for the user of solar energy, May I think it can be beneficial in coming days...

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