Wednesday, March 1, 2017
A Chat With Jamie Montgomery On How LA's Tech Ecosystem Has Grown
Story by Benjamin F. Kuo
Next week is the Montgomery Summit (www.montgomerysummit.com), one of the longest running technology conferences held in Los Angeles. The conference is run by Jamie Montgomery, one of the local industry's pioneers in venture capital and investment. We sat down with Jamie—who has been part of LA's technology industry, either as an investor or advisor since its very early days--to get his perspective on where we are today, especially as it relates to all of the companies he's worked with over the years on a more global stage and in Silicon Valley, and his advice to entrepreneurs. Jamie is currently also co-founder of March Capital Partners, in addition to running the summit.
First of all, what's new with your conference this year?
Jamie Montgomery: We have companies from 56 cities and 22 states presenting, as well as a few from countries like England and France, investors from China, Japan, Malaysia, Singapore, and India. We have quite a few Indian companies, and many from throughout Europe as well as Israel. It's now an internationally recognized showcase for technology here in Los Angeles, and we also get to showcase Southern California companies, as well. We're now one of the top five tech markets in the world, along with the Bay Area, New York, the rest of Southern California, companies in India, and places like China, Berlin, and London. We probably have six of the top seven regions of the world present here, and it's good for LA to also be on stage showcase our companies.
What most excites you about the technology industry here today?
Jamie Montgomery: I think we're just finally coming of age here. It's probably a 25 year cycle, and we're only a quarter of the way into it. We've seen some notable successes. Snap hopefully will be one, or is one already, and Cornerstone OnDemand, and what Brian Lee has done. The universities are now more focused on the innovation economy, with schools like USC, UCLA, Caltech, the Claremont Colleges all bringing good people to LA. For young people, those career moves to technology are no longer tangential to business, it's more of a mainstream part of the economy. Plus, technology is impacting so many other parts of the economy today, like energy, retail, and finance. In the last couple ofyears, we've seen more enterprise technology and software locally here, and software is starting to grow up. There's content, digital media, and enterprise, and obviously eSports is centered here, AR and VR should be centered here, though we're early on that so we'll see how that plays out. We're also excited about the areas around artificial intelligence for certain verticals. If you think about all the things you need for autonomous vehicles, it's all here in LA. The LIDAR, the sensors, the software, what's been developed for and by the aerospace industry, JPL, and local universities. There are some big opportunities around autonomous vehicles I'm really excited about.
It looks like you have a special session on female entrepreneurs again this year?
Jamie Montgomery: For us, we believe it takes an ecosystem to be successful, and we're trying to create that right here. On Tuesday, we have a program regarding female entrepreneurs. Los Angeles is a place that has a higher proportion of females starting companies than elsewhere, due to the nature of the businesses here. There are more consumer, fashion, e-commerce, beauty, lifestyle, health and wellness companies here, and I think those areas see a higher percentage of female entrepreneurs than you might find in semiconductors or software. We're excited that here in LA, female tech entrepreneurs are probably, as a percentage, twice those started in the Bay Area. I think that is a big strength for us.
What's your take on where we are today with the M&A and IPO cycle?
Jamie Montgomery: I think we're on the cusp of some real activity in M&A. If you look at it, the number of companies going public will go up dramatically, but it will always be a small portion of the overall percentage. You could triple IPOs, and they will still be less than five percent of exits. I think we'll see a big increase in IPOs in 2017, but I think there will be, more dramatically, a big pickup in M&A. There are four kinds of buyers in M&A. One is the traditional buyer, the Microsofts, Oracles, Googles, and Ciscos of the world, with their cash. They're acquisitive, have cashed up, and lots of them are now looking at repatriating money to the US. That will cause a real boom in M&A. They used to be 70 percent of the M&A in the market, but they're now only 30 percent. That's because of other areas. The second, is the nontraditional buyer. That's the Unilver acquisition of Dollar Shave, the GE acquisition of ServiceMax. Technology is now across every industry, and every company now views themselves as a technology company. The third area, are the private equity players. In terms of that, they are people like Vista Equity, particularly, but also Summit, TPG, KKR, and Silver Lake. There is a lot of money being driven by low cost debt. There's a lot of money available for buyouts, and companies going private. For many, that's a real alternative to going public, having a private equity player come and buy out your shareholders, and it really reduces the costs of being public. A fourth area which is driving things, is foreign buyers. They are mostly Asian, and they do not think of themselves as Chinese or Japanese companies, but as global companies. Those are companies like Rakuten, Softbank, Recruit, Tencent, and some larger financial services company. They are very acquisitive. That will be almost 20 to 25 percent of the M&A activity. What's different between this time, and maybe five years ago, is I used to get a call and someone would want to sell a tech company. We'd fine fiver or six companies sort of interested, and ask them what they'd pay. Today, it's a much more global business, with cross industry buyers, financial buyers, global buyers out of Asia, all on top of traditional buyers. It's a much bigger universe of buyers. I think you're going to see a really big increase in M&A, and the traditional guys really stepping up the pace with likely repatriation of cash, with as much as a trillion in tech related cash coming back here to America.
What's your biggest advice to entrepreneurs on being one of those that does get to a successful M&A or IPO exit?
Jamie Montgomery: I think there are a couple of things. You have to find the appropriate financing structure for the company you are going to become. Are you looking to build a big platform, or build something for a $100M exit? The way you finance it is very different between the two. Money is something you have to pay back. Some people don't sit and think about what they are trying to accomplish when they are raising capital. You need to be very thoughtful about your goal and the partner you want to have. If you have a really big plan, do you have an investor who is going to think big? Sometimes, an investor would like to punch out at $50M, but for a bigger goal investor, they might want to see a $1 billion play, and wouldn't be happy at all about only a $50M exit. So matching up with an investor is very important, and you have to put some thought behind it. The other thing to think about, is the role of a strategic investor backing a company. We are very engaged in this area, because they can be very helpful in reducing time to market, and can be a really vital and vibrant part of the financing scheme. We have a session on day two with the heads of Microsoft Ventures, IBM Ventures, Salesforce Ventures, and Dell Ventures, and we are encouraging entrepreneurs to attend and really look for engagement with those partners.
Thanks, and good luck at this year's conference!