Not all doom and gloom

I picked up this quality post from Fred Destin (from Atlas) this morning. There is a difference in the VC industry at the moment between those believing that the current environment heralds a significant shake-up in the number of VCs and those that think that this is a temporarily fallow period. I agree with Fred on the former but also with his assertion that entrepreneurs should not feel daunted about getting started in the current environment: it is a great time in terms of talent on the market, (relative) lack of competition and providing focus.

Tighten the belts

Techcrunch published a story yesterday which Techcrunch UK followed up on today about the financial fallout and which start-ups might be best placed to weather the storm. The current situation is arguably more serious than the bursting of the bubble during 2000 and 2001. At that time we were in a period of resetting of valuation expectations. This time we are faced with a situation where venture capitalists will find an exit far more challenging (particularly tough after a record 2007). In addition, those at a point in the cycle where raising money for new funds is required will also find themselves working harder than normal.

I am taken back to the 3GSM World Congress (as it was called then) in 2002 seeing fewer of the same companies again rather than any new start-ups.

The key for any start-up at this stage becomes survival. If you can capture viral growth and/or have the ability to generate cashflow in excess of your burn (even in the economic downturn) then you are very well placed. If you are in a position where cash breakeven is not immediate then you need to show nimbleness and determination.

I was Chairman of a company called UCP in 2002. It is to the immense credit of the management team (Christian Lutz and Marwan Saba) that they survived this period through a mixture of tight cost control, tough strategic calls and dogged sales conversion. When the gloom lifted a couple of things happened: UCP looked around and saw that it had fewer competitors than before the storm (some had gone bust and had not been replaced with new money) and that larger players were suddenly eager to break into the market.

Their tenacity enabled them to stay in the game and without that the subsequent purchase by QPass and then Amdocs would never have happened.

The message for start-ups is clear: get your planning right and do it right now for how you will balance the books over the next 18 months. It will pay dividends in the long run.

Good luck!


Here is another article from Techcrunch including a memo from a VC called Benchmark highlighting what I said above about survival being everything.

Serial Entrepreneurship: An advantage?

Another good post from Nic Brisbourne at TheEquityKicker concerning the advantages or not of backing a serial entrepreneur and the difficulties this poises to the VC community. The impression following deal flow is that VCs back serial entrepreneurs more often than first timers. The nub of this analysis is that the best returns may not back up that strategy and the best VCs may be those that can allow themselves to back the horse without the form guide.