Making Money in Technology
After the Bubble, page 22
Valuation Methodologies and Technology Trends, continued
Neither approach is quite right by itself. Book value in the case of technology companies is essentially
irrelevant.
A technology company’s most important assets are inside the heads of its people. This cannot be measured
solely using conventional investment metrics. On the other hand, there must be a coherent plan for making
money.
Stories are all very good, and an important part of understanding market opportunities. A convincing model
that shows valid present discounted value of future earnings must buttress them.
Technology is inherently trendy, and “hot” areas command higher valuations than areas that are out of vogue.
It’s hard to know what the next “new new thing” is—is it wireless, Photonics or peer-to-peer?>
The trick is being neither too early nor too late. If you are too early, there is no market. Probably,
the components and suppliers you need to work with are not there yet either.
If you are too late, the playing field will already be crowded. You may stand a chance as a spoiler or a
discounter, but the pickings will be slim.
Ideally, you should start planning—or investing—in a venture just early enough so that by the time you
are ready to go to market it is hot as the dickens, and you are the first or second to be there.
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