With financial markets melting down amid predictions of a deep recession around the world, the conventional wisdom is that funding for tech start-ups is in a deep freeze.
But sometimes the conventional wisdom overstates the reality. The economy's in an awful rut but some tech start-ups are still raising money. Just in the last couple of weeks, there's been a rush of funding announcements hitting the transom. Of course, that news has been overshadowed because of the obvious attention being paid to the market's volatility. But consider the following:
• Mail.com Media got $35 million in funding.
• BillShrink raised $8 million in a Series B round.
• Industrial Origami finished a third round--this time for $17 million.
• Wide Orbit secured $10 million.
• Trusteer gets a $6 million Series B round.
• Bain Capital invested an undisclosed amount in Blip.TV.
And then Thursday, former SAP exec Shai Agassi secured a deal with AGL Energy and Macquarie Capital Group to raise $665 million to build an electric-car infrastructure in Australia.
I don't want to sugarcoat this. The IPO market is moribund and there still are a lot of layoff announcements in techdom--but this is one from the counterintuitive files. What's more, even as layoff announcements grab the headlines, many tech firms still say they are hiring. Yes, hiring!
How, then, to explain the apparent contradiction? First, check out the conversation I had earlier in the day with my CNET colleague Rafe Needleman, Webware's editor in chief.
A couple of points to consider.
Even during severe downturns, new technology development never grinds to a complete halt. As Rafe suggests, the question boils down to whether a company can remain sufficiently lean to outlast the hard times. It helps if it's not under pressure to turn an immediate profit. If, as expected, the economy can return to something approximating normalcy within the next couple of years, history will repeat itself and another generation of tech start-ups should emerge from this squall in fine fettle.
Of course, if the nimrods in Washington mishandle the recession and it turns into a full-bore depression, then we'll all be commiserating on the bread lines before long.
It's reached the point where I don't trust any of the big research houses to get it right when it comes to IT spending.
Last month Forrester reduced its 2009 IT spending forecast while at the same time upping its projections for the remainder of this year. (I should add that Forrester issued its declaration just before the big financial meltdown got going in earnest.)
Meanwhile, tech CEOs gathering this week at the Gartner Symposium ITXpo conclave in Orlando are moping around as they regale each other with ever more depressing tales from the trenches. The Gartner graphic I've embedded here explains why they're uneasy about the near-term:
(Credit:
Gartner)
Nobody is yet predicting a collapse of the mainstays of IT a la what's happening to the nation's increasingly beleaguered automakers. But the economic slump is taking a bite out of everyone. After the market closed Tuesday afternoon, Intel reported a 12 percent jump in net income, but warned that the fourth quarter would be "difficult to predict." And in its boilerplate statement, the company included this caution:
The recent financial crisis affecting the banking system and financial markets and the going concern threats to investment banks and other financial institutions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit and equity markets. There could be a number of follow-on effects from the credit crisis on Intel's business, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies; counterparty failures negatively impacting our treasury operations; increased expense or inability to obtain short-term financing of Intel's operations from the issuance of commercial paper; and increased impairments from the inability of investee companies to obtain financing.
News.com Poll
Translation: Intel's worried about the solvency of key suppliers. Speculative, to be sure, but still a big departure from the company's recent talking points.
At this point, everyone's guessing about what's supposed to happen next. How long will it take for the emergency moves by the U.S. Treasury and the G-7 to percolate through the credit markets? What kind of lift might that give to the economy - and indirectly, the IT economy? Will consumers feel confident enough to fill their shopping baskets with consumer electronics gadgets come December?
A lot of questions, few answers. The only safe conclusion is that this is going to take a while to work out. For a good read on what may be in store, check out Larry Dignan's excellent post on ZDNet testing the proposition that software megavendors are too big to stumble.
Click here for ongoing coverage from CNET News, "Tough times for tech."
An analyst at Canaccord Adams named Peter Misek caused a minor stir on Thursday when he suggested to Reuters that Research in Motion's weak stock price may induce a buyout bid by Microsoft.
His argument is that Microsoft needs to stay competitive vis a vis Google and Apple in the smartphone arena. Conclusion: "RIM is a massive strategic fit" for Microsoft."
Darwin: Will the rules apply again?
(Credit: Wikimedia.org)I'm not so sure that Microsoft would help itself by going the RIM route, but Misek's instincts are sound in one respect: the global turmoil might--and the operative word is might--spark a vigorous round of mergers and acquisitions in the technology business once normalcy returns.
What with one stock sell-off followed by another, the tech sector's biggest names have all taken their lumps. Ditto for the start-up crowd. By now, you may have read or heard about the "R.I.P. Good Times" presentation Sequoia Capital gave earlier this week on behalf of its client companies. Om Malik, who was first to report the news, offered this grim assessment:
Folks this is bad news for Silicon Valley, which has been living in a bubble, assuming that it is going to weather the global economic storm without being impacted. We have been following this story since last year, pointing out that the tech (industry) is not an island.
It's hard to disagree with Om's conclusion. Writing in Forbes today, columnist Sramana Mitra urged Silicon Valley's leaders to lead the country out of its "current miasma of fear."
Steve Jobs and Eric Schmidt to the rescue? Well, those guys are good, though not that good. But considering that we are about to start the weekend, let me try and find at least one silver lining.
The last time a stock panic ravaged Silicon Valley, what happened? There was no shortage of post-bubble doom and gloom but the technology industry mended on its own. Hewlett-Packard bought Compaq, Oracle acquire PeopleSoft, BEA, and J.D. Edwards, IBM acquired Cognos, Ascential, Rational, MRO Software, and a host of other mid-sized enterprise software companies and, of course, Google bought YouTube.
Once the smoke clears, the tech industry will undergo a similar round of Darwinian consolidation--and that's hardly a bad outcome. Do you really think Compaq would have prospered had HP not swooped in? Ditto for all those enterprise software companies had not IBM and Oracle gone on buying sprees?
I pinged a venture capitalist who I've known for years for his take. Here's part of what he wrote: (sorry, no names)
When your mail popped in, I was on the phone with several M&A companies talking about that exact strategy. One thing actively floating around is this pushes consolidation of small/mid-tier players. Then those resulting companies are the actual targets.
My Microsoft buddies tell me that the pile of crippled technology companies (crippled from a funding perspective) is so large and the prices so cheap, they have a decent pick at figuring out plays in markets, etc, whereas six months ago these options didn't exist. Bulking up the search assets, for example, is a big priority and this situation helps. But there are serious cutbacks happening at all of the big guys, so it remains to be seen if anybody will actually act on this.
In other words, chalk it up to the fear factor. Taking a deep breath as I write this, you've got to believe that that narrative will change--predicting exactly when, of course, is the hard part.
• Postscript:
With the market's slump, Larry Ellison told shareholders at Oracle's annual meeting that the company may take advantage of the recent stock volatility as an opportunity to acquire other software makers.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
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