Unlocking the Future using AI with David Toms
• 1 minute read
A Decade Outlook for Hg's Businesses
David Toms analyzes the software industry, focusing on optimizing investor returns amid challenges like a declining working-age population and rising labor costs. He compares the US and European markets, highlighting the importance of mergers and acquisitions in Europe. Toms emphasizes that software growth is driven by innovation, particularly AI, which enhances efficiencies. He also discusses the volatility in software investing and the need for consistent earnings growth for long-term success.
Watch the full video to understand the dynamics shaping the industry and Hg's approach to maintaining its competitive edge.
Why do the differences between the US and the european markets matter to Hg's portfolio companies?
Firstly, the US domestic market is widely regarded as the largest software market globally. This means that it offers substantial opportunities for growth and returns. However, looking beyond the US market is crucial because it allows companies to diversify their revenue streams and reduce dependency on a single market. This diversification can help mitigate risks associated with economic fluctuations or regulatory changes in one region.
Secondly, the European market presents unique opportunities and challenges. For instance, Europe has a strong emphasis on data privacy and protection, which can influence how AI and software solutions are developed and implemented. Understanding these regional differences can help Hg's portfolio companies tailor their products and strategies to meet local regulations and customer preferences, thereby enhancing their competitiveness and market penetration.
What is David Toms' role at Hg and what does it involve? |
David Toms is the Head of Research at Hg, focusing on analyzing trends in the software industry to optimize investment returns. |
What is the impact of the declining working-age population in developed countries? |
The working-age population in OECD countries peaked in 2022 and is now in decline, leading to increased labor costs and selectivity in job choices. |
How has innovation influenced the software sector over the years? |
Innovation, such as generative AI and cloud computing, has been a consistent driver of growth in the software sector, compounding over time. |
Why is M&A important for entering new markets in Europe? |
M&A is crucial for gaining local knowledge and skills when entering new European markets, as regional differences can significantly impact business operations. |
What common mistake have software investors made in the last decade? |
Investors have often underestimated the durability of growth in software, focusing too much on spotting new trends rather than recognizing the strength of existing ones. |
What is the dominant driver of long-term performance in software investing? |
Earnings growth is the primary driver of long-term performance, with consistent growth leading to significant returns over time. |
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