20
Aug
2019

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Why technology is the big advantage for small companies

Technology once presented a major barrier to entry and often stifled competition. So what changed? We see the explosion in the cloud as a catalyst for why we believe small companies represent an attractive area of investor opportunity.

I was working as a Technology Consultant around 20 years ago and the issue of the day was the lead up to the millennium date change, or Y2K and it was a big deal in the technology world.

Companies, stricken by fear that the technology lights would go off, were spending up big on the latest corporate computing infrastructure of the day. The stock market darlings, IBM, SAP and Oracle were the solution of choice to the Y2K problem. Back then it was a corporate badge of honour to have a multi-million-dollar tech project underway.

The cost of these platforms meant it was difficult for a small company, even if it had a revolutionary idea or a better way, to take on entrenched deep-pocketed incumbent competitors.

Technology once presented a major barrier to entry. The price of market access was just too high. Instead of enabling competition, technology had a way of stifling it.

Now the tables have turned, and it’s why today small companies, we believe, represent an attractive area of investor opportunity.

So what’s changed?

In two words – the cloud. It’s the availability of key technology building blocks, as a service, in the cloud.

What’s the cloud? The very short answer is the technology advantage of the multi-million dollar IT project is available today, utility fashion, just like electricity. That’s right, you switch it on when you want it, it’s available everywhere – where there’s a (telecom) network – you can consume as much you want, whenever you want it, and switch it off when you don’t. Paying only for what you use.

Today’s electricity companies are Microsoft and Amazon, amongst others, they are the technology power stations of a small company today. And that’s a game changer.

What’s the advantage for smaller companies?

Small companies can get their ideas to market today like never before, but they are also unencumbered by legacy technology created for a time that has passed. They are much nimbler.

Creating products and services, launching them fast, learning from their failures in real-time, adapting and going again, happens in a way that big companies can only dream of. Elephants rarely dance.

It’s not just about taking on the incumbent for market share in existing markets. The ready availability of low unit cost of technology is giving rise to new opportunity too, we call them micro-vertical opportunities.

The past technology economics rendered some opportunities as un-viable as the markets were just too small to justify the high capital and ongoing cost required for access. The technology economics of today however mean these present interesting opportunities. These are occurring domestically, specific to Australia, and some are maturing fast enough to justify a go at taking their idea overseas. Just think about AfterPay.

We see this happening regularly in our small-cap investment universe, and not just tech companies, but many small industrials taking advantage of a technology environment available to them in a way that big competitors can’t.

Our process at Montgomery is built to look for small-cap sustainable growth companies, poised to take advantage of this shift in the technology landscape, at an early or emerging stage of their lifecycle.

Sustainable growth companies require vision to see what the future may hold – but before we invest – we apply our process and experience to look for firm foundations of a company’s competitive advantage, its strategy and management team’s capability to deliver. We need to be satisfied they can harness the potential of the value creation journey which will benefit our investors.

To pre-register to receive more information about the launch of the Montgomery Small Companies Fund, please click here.

Our Funds

The Montgomery Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Global Fund

  • GLOBAL
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Alpha Plus Fund

  • GLOBAL
  • A market neutral strategy
  • From $50,000
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Montaka Global Access Fund

  • GLOBAL
  • Access long/short global equity portfolio
  • From $50,000
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Montgomery Global Equities Fund (ASX:MOGL)

  • GLOBAL
  • Concentrated high conviction equities
  • No minimum investment - see your broker limits
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Montgomery Small Companies Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
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Our Funds

Concentrated High Conviction Equities

Listed

Montgomery Global Equities Fund (ASX:MOGL)

Global
Available on the ASX as an Exchange Traded Managed Fund, invests in 15 to 30 quality global businesses for long-term capital growth with a target distribution yield of 4.5% per annum. Mirrors the strategy of the Montgomery Global Fund.
Unlisted From $25,000

Montgomery Global Fund

Global
Invests in 15 to 30 quality global businesses for long-term capital growth. Priced daily. Mirrors the strategy of the Montgomery Global Equities Fund (ASX:MOGL).
Unlisted from $25,000

The Montgomery Fund

Australia/NZ
Aims to provide long-term growth and income by investing in 20 to 40 high-quality Australian and New Zealand businesses trading at attractive valuations. Priced daily.
New Fund

Montgomery Small Companies Fund

Australia/NZ
Aims to provide long-term growth by investing in 30 to 50 high quality, undervalued, Australian and NZ small and emerging companies with strong growth potential. Priced daily.
Unlisted from $1 Million

The Montgomery [Private] Fund

Australia/NZ
Seeks to deliver absolute returns from a portfolio of high-quality Australian and New Zealand businesses. Capital preservation is paramount. By invitation only.

Alternate Equity Strategies

Unlisted from $50,000

Montgomery Alpha Plus Fund

Global
Aims to generate positive returns in both rising and falling markets. Invests in 80 to 180 global businesses expected to deliver above-average returns, while selling short a similar-sized portfolio expected to deliver below-average returns. Priced daily.
Unlisted from $50,000

Montaka Global Access Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. Priced monthly. Provides retail investors access to the Montaka Global Fund.
Unlisted From $1 Million

Montaka Global Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. By invitation only.