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While I was still at university during the fall of 1981, Apple stock cratered, and I lost money for the first time in tech investing.
The next crash that I remember was during the early 1990s, when DEC (Digital Equipment Corp) shares began their long decline, which hailed the beginning of the recession and the end of the mini-computer era in tech.
It was at the tail end of that crash — mid-summer of 1994 — that my co-founder Jeff Horing and I started looking to find ways to raise money for our first-ever Insight Venture Partners Fund.
It’s likely that we are at the end of a tech cycle and the dawning of another new era in computing.
At the time we were in our early thirties, lacking office space to receive visitors and suffering occasional bouts of acne; we dealt with intense skepticism by potential limited partners. However, we remained undeterred in our ambition to become professional investors.
Back then a “software-only fund” was considered ludicrous by many, and very risky by all to whom we pitched our big idea. We had lots of sand kicked in our faces, but we persisted and eventually raised our first fund.
When the dot-com crash came in March 2000, and the “coup de grâce” in September 2001, we were distressed, like any of the top VC funds which were heavily exposed to consumer-oriented “dot-com” companies. When the recessionary tides went out they took all the “boats” down with it, including ours.
We learned a big lesson: While the dot-com companies were the types of investments we were careful enough to avoid, just hanging around in the neighborhood was risky enough that you could find yourself being caught in the collateral damage of the overall crash. We were very fortunate to have had positive-return funds during this period.
When the crash came in 2008, which coincided with the shift away from Web to mobile Internet businesses, we were ready for it. In fact, we were even a bit early with some mobile investments, but it was a propitious time to have been able to invest in Twitter and other mobile-first companies during the depths of the financial crisis in 2009.
We are in a bear market for tech and the broader financial markets.
Looking back on the previous downturns and comparing them to current conditions, it’s likely that we are at the end of a tech cycle and the beginning of a concomitant “bear market,” which can be linked to the “China Fright” that occurred last July and August.
I am far from being a lone voice in terms of the overall state of the financial markets — both Stanley Druckenmiller and Carl Icahn have expressed similar sentiments in regards to a bear market, beginning last July.
For many tech companies that had been on a multiquarter run of increasing stock prices, that period was a high-water mark, as valuations crumbled in the remaining months of 2015.
The last month of Q1 2016 saw some recovery, but no tech companies went public, which ended the slowest quarter since 2009. I expect that we may see a handful of IPOs during the rest of the year, but they may be more illusive than the ubiquitous so-called “unicorns” that still manage to raise money as private businesses.
If we consider the downturns in tech that I have discussed, we should note that they often go hand in hand with broader financial market challenges.
As is the case currently, these market dislocations will likely last several months or longer, as they have in the past.
This end of the tech cycle and concomitant financial bear market can often be a part of a long-term secular bull market.
Tech cycles and financial market corrections are often part of a long-term secular bull market where buyers outnumber sellers over an extended period of time. Consequently, I will continue to invest in the funds I co-founded, because I want exposure to true long-term secular growth.
With each and every crash comes a new era of opportunity. The early 1990s recession saw the end of the mini-computer era, which opened the door to the client-server era, and was then uninterruptedly followed by the first Internet boom of the late ’90s.
The dot-com bubble and crash in 2000/2001 presaged the recession of that era, which ended with the explosive and volatile Google IPO of 2004.
The “great recession” of 2008 ended the dominance of Web companies and ushered in the mobile Internet era, thanks in part to the 2008 launch of iPhone 3G that sold 10 million units in the first five months, far exceeding the sales of the initial iPhone in 2007.
The end of a tech cycle can be characterized as the end of an era of computing.
I think a new era of computing is percolating right now as exemplified by the early signs of a broad-based adoption of “CaaS” — containers as a service — and “bots.” Many developers and industry pundits credit the startup Docker (in which I am an investor) for being primarily responsible for the creation of the market for container technology in its drive to make the Internet programmable.
Overall, software development is experiencing the most profound shift since we founded Insight Venture Partners, thanks to a container-enabled micro-services revolution that is in full swing.
Echo, a voice-controlled speaker from Amazon that was rumored to have sold over one millions units in the first two weeks of pre-orders, is now a certified hit. And its chatbot, “Alexa,” will likely be a future platform for disruption. Although bots in general are still a work in progress, Microsoft CEO Satya Nadella was recently quoted saying that bots will have “as profound an impact as any of the previous shifts we’ve ever had.”
Computing eras are never led by just one wave of technology, but rather they are made up of multiple interfering waves that shift from a low amplitude (low-adoption) destructive phase to high amplitude (high-adoption) constructive phase, as illustrated by the following graphic:
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The metaphor I speak of can be further exemplified by analyzing the mid-1990s “client-server” era, where we can see the effects of two technology waves: Low-cost but relatively high-powered microchips and readily available networking technology coming together at just the right time to supplant the mini-computer era.
At the end of an era of computing some technology waves of the next era may be visible, but a clear vision of how those waves come together is not yet possible.
Tech tsunamis like Uber and Airbnb are still in the early stages of their evolution: Only a harmless ripple on the “sea of innovation” a few years ago, they have now “hit the beach,” causing massive disruption commensurate with astonishing increases in shareholder value.
I strongly believe that there will be at least one more monster-sized mobile-first marketplace that will emerge before this era completely comes to a close.
In sum, the “pause” in the bull market has arrived, and it will continue to be reflected broadly in global equity markets and specifically in the valuations of tech stocks.
Coincidentally, global smartphone sales, which have been a key economic driver of the “mobile-Internet era,” are now predicted to drop below double-digit growth to single digits, perhaps as low as 6 percent CAGR for 2016 and beyond. This flattening-out of the growth curve will have a significant impact on the mobile ecosystem as Apple and Google turn their focus from growth to deepening their “moats.”
By the time the next tech era becomes apparent, we will have emerged from the depths of the current bear market.
That said, I am certain that we are about to experience the dawning of another new era in computing. Technologies like the previously discussed containers, which enable micro-services and bots, which in turn enable “smart” voice-powered user-interfaces, will likely contribute to the constructive interfering waves of the next era.
No one knows what the ultimate catalyst will be, and no one knows exactly when or how these technology waves will come together in rising amplitude.
We probably won’t have visibility for many months to come, but rest assured, the next era is incubating in the hearts and minds of the next generation of entrepreneurs who are actively inventing the future.
Jerry Murdock is a co-founder of Insight Venture Partners, one of the world’s largest venture capital firms. Reach him @aspenjfm.
This article originally appeared on Recode.net.
