Writing for Marketwatch, Therese Poletti sounds a down note for tech start-ups and declares Web 2.0 officially dead. Getting funding for your start-up is the main issue and she heavily cites a survey by the National Venture Capital Association (NVCA) indicating that 2009 is going to be a rough year to get early-stage tech businesses off the ground.
Her take is that unless it is a revolutionary idea - not already in play - or is in clean tech, it is best not to quit your day job and to wait for better times to launch your start-up company. A choice excerpt from her column:
"The cash-rich corporate shoppers and free-spending buyout shops of recent years -- which combined to push tech deal making last year to a nearly half trillion dollar business -- stepped out of the market in 2008," said Brenon Daly, an analyst with the 451 Group, in a summary.
According to the 451 Group, there were only two venture-backed tech IPOs in 2008, and both offerings are currently underwater.
So what is an entrepreneur to do? According to the VCs interviewed in the NVCA survey, almost all venture capitalists, 96%, believe it will be harder for new companies to get funded in 2009. And another 93% predict it will be harder to sustain their existing portfolio companies, as exit strategies via acquisitions and the public markets have nearly completely shut down.
"2009 will be the year in which the world's capital markets begin rewarding 'real engineering' instead of 'financial engineering' again," said Trevor Loy, a general partner at Flywheel Ventures with headquarters in Santa Fe, N.M. He believes entrepreneurs creating companies based on innovations in materials science, chemistry and other physical sciences, looking to solve key problems of energy, water, infrastructure and health will offer the most promising long-term returns.
Most VCs, 48% of them, expect an increase in investment in clean tech companies, while 79% predicted a fall off in investment in semiconductors.
And here (pdf) is the actual press release from the NVCA about its survey.
My take is that in 2001 and 2002 during the dotcom bust, there were a lot of great ideas that were developed and refined in basements and incubators that led to Web 2.0. So while 2009 may be a bad time to go out and find funding, entrepreneurs should keep developing their ideas and collaborating with others to polish them in anticipation for a better funding environment.
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