Dan Case has learned to think like a prospectus. That would be a terrible insult to most sensible people, except that Case personifies the best attributes of those sometimes-dismal (and these days, hard-to-find) guides for investors -- sharp and comprehensive analysis, an ability to see the broadest business landscape, a deep grasp of financial logic -- and leaves the boilerplate behind.
Daniel H. Case III has spent his career working the intersection where fast-moving startups and big, established companies cross paths. A Rhodes scholar, Case was 34 when, in 1992, he became CEO of the fabled San Francisco-based technology investment bank Hambrecht & Quist, where he presided over some of the Internet economy's most efflorescent IPOs, including Netscape's and Amazon.com's. In 1999, in a deal valued at $1.35 billion, he steered H&Q into the arms of financial-services giant Chase Corp., and he has managed to keep the investment bank's interests front and center through the recent merger of Chase and J.P. Morgan.
Case recently stepped down as CEO of J.P. Morgan H&Q, though he retains his chairman's title and continues to work part-time as he undergoes daily radiation therapy, following surgery to remove a malignant brain tumor on March 23. Three J.P. Morgan H&Q executives have assumed some of the responsibilities of the indefatigable Case.
In the interest of full disclosure, Case also happens to be the brother of another guy named Case, who is no slouch himself when it comes to innovation and value creation. Indeed, AOL founder and CEO Steve Case pulled off the biggest merger in history when his company acquired Time Warner in a deal valued at $104 billion. Dan plans to introduce his brother on May 3 as the luncheon speaker at J.P. Morgan H&Q's annual technology conference in San Francisco.
In the prospectus that follows, Dan Case provides an intellectual public offering on strategy, growth, technology, and innovation.
Discussion and Analysis of Financial Condition, containing forward-looking statements that involve risks and uncertainties about whether the new economy is really linked to the old economy and just what is meant by the "real economy."
I think that if you step back and look at which companies have grown fastest in the past five years -- which ones climbed into the ranks of the largest in the world -- the biggest single group is technology-related companies. The second-biggest group is companies that have done a good job of applying technology for competitive advantage. Those two groups will still be the top two contributors during the next five years. But the second group, the appliers of technology, is where I expect to see the biggest liftoffs occurring.
The new economy and the old economy are converging into what, for lack of a better phrase, we're calling the "real economy." The convergence is one of the major motivations for all sorts of strategic combinations and partnerships lately, including the deal between Chase H&Q and J.P. Morgan. We still think that technology is a growth business. We're just saying that there will be more Wal-Marts this time around -- companies that are brilliant at applying technology -- and fewer pure-technology, mega-billion-dollar companies.
Every now and then, you get a significant structural change, such as the rise of the Internet. For all of the excesses of the Net, for all of the boom and bust, we still have value creation and company creation happening at twice the rate that those things happened when the PC industry took off. Use any kind of weighted average you want, but the chart for the Internet is still way ahead of the chart for PCs, and the chart for PCs is the biggest chart since semiconductors hit the same inflection point.
The following discussion sets forth the circumstances surrounding the mercurial nature of venture capital to fund innovation and asserts that there are still big opportunities in a downturn.
Lots of entrepreneurs are bitter about what they see as the spigot of venture capital shutting off in the past 12 months or so. But they're assuming that the conditions that existed prior to the correction were appropriate -- and they weren't. So the bitterness may be easy to understand, but it's probably misplaced. Let's face it: The structure of the venture-capital financing process is more broken than it has been since 1984. And interestingly, the venture-capital problems in 1984 and 1985 came from excesses in PCs and semiconductors.
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