Tech outlook: Brace for a bad year, but don't surrender optimism
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By Lori Hawkins
AUSTIN AMERICAN-STATESMAN STAFF
Monday, December 29, 2008
Austin, Texas -- I don't think I've met a more optimistic venture capitalist than Jimmy Treybig. This is a guy who sees opportunity everywhere, even in a down economy — especially in a down economy.
But lately I've been hearing that even Treybig, an Austin-based venture partner with New Enterprise Associates, is worried.
So when I set out to survey Austin venture capitalists and entrepreneurs about their predictions for 2009, he was the first person I called.
"I'm not at all negative," he told me, "but I'm saying it's a different time, and you better react to it. You've got to survive with less money and plan for the worst."
Treybig predicted that the recession will spur the creation of some promising Austin startups in 2009.
"Now is the time to break out," he said. "Small companies can do better in tough times because they haven't gotten into big debt or become dependent on corporate customers who cut off their spending. But I'm not saying it's easy. It's very hard."
Treybig knows something about starting a company during a downturn. "The last time it was bad like this was 1974. The mainframe business was struggling, and BusinessWeek said there wouldn't be another new computer company. That's the year I started Tandem, in a year like this."
In the next two decades, Tandem Computers, based in Cupertino, Calif., grew to more than $2 billion in annual sales and 10,000 employees at its peak. It was acquired by Compaq Computer Corp. in 1997.
"The survivors in bad times are the future winners. That's the way to think," he says.
Still, Treybig is bracing for a seriously ugly year.
"The economy's going to hell," he says. "The question is, how are you going to deal with that?"
After speaking with Treybig, I shot an e-mail to Andrew Busey, founder of Challenge Games, which raised $10 million in September from Silicon Valley venture firms.
Before Busey wrote his response, he called me to warn me that it was going to be a downer.
"I'm pretty pessimistic about general conditions in 2009," he said. "Let me know if this is too dark."
His take: "I'm not very optimistic about 2009 in general, and I think Austin will share in the global downturn. I think it will be very, very difficult for startups to raise any money next year, and the ramifications will be far worse for the tech community. What makes it even worse than 2001 is that it will not be contained to the tech community this time. I also doubt there will be any (initial public offerings) in 2009.
"The one ray of light for startups is that there will be a lot of opportunities, but people will need to bootstrap to a first product and grow their business before considering funding."
From Rudy Garza, managing general partner of Austin-based G-51 Capital LLC, came another prediction of startup creation.
"Innovation doesn't stop during a downturn," he said. "It's really the best time to start a company because everything is so much less expensive. Rent is cheaper, and there's a lot more highly skilled talent available. You get to take advantage of Dell and all the other different groups laying people off."
Although Garza believes the first half of 2009 will be grim, "I do think that by midyear, most of the restructurings and reorganizations will have been completed and we'll have an economic stimulus package in place. Hopefully, we'll start to see people settle back into more normal corporate and consumer spending. I'm cautiously optimistic for the second half of 2009."
Here are some other perspectives:
Steve Shoaff, whose startup UnboundID Corp. raised $3 million from Silverton Partners, said his hope is "a sustained push towards value companies with an increase in private sector job creation. However you choose to describe the past 10 years, it was a time when perception trumped reality. I hope that 2009 becomes the year where businesses return to sound principles of operational excellence and strong execution. This will ensure that valuations are not fabricated, but based on real profitability."
As for his fear that people will become discouraged and give up: "I saw an interview a few years ago where someone was asked if they got discouraged. Their response really stuck out. He said, 'I don't get discouraged — I get determined.' We live in the greatest country on the planet. Austin has an amazing talent pool and resources to help you succeed. Combine those with gritty determination, and I see great things for Austin and the country ahead."
Rob Lynch, CEO of Innography, which raised $6.5 million from Hunt Ventures, Austin Ventures and others in August, said: "The Austin economy is tied to the U.S. economy, so my biggest hope for 2009 is that the right stimulus package by the new administration, which should include things such as permanent tax cuts, economic investments, increased employment and fiscal responsibility programs which do not hurt capitalism, will kick-start the economy in the second half of the year.
"My biggest fear for the Austin economy is that it may take a couple of years before the U.S. economy returns to normal, which probably means many Austin companies who sell throughout the U.S. will put new hiring on the back burner until they see their orders come back to normal and most consumers will continue not to spend unless they have to."
Dave Altounian, president of Motion Computing, which this month raised $6 million from G-51 Capital and others: "My biggest hope for Austin in 2009 is that we start seeing capital flow for all businesses, regardless of size or location. We need healthy markets to sell products and services into. The Austin economy is dependent on investment and growth for our businesses to survive. If we see investment start to pick up, we can then expect increased sales, hiring, growth and stability.
"My biggest fear for 2009 is that we'll see a continuing decline in spending and investment which will make 2009 a difficult year for Austin. If Austin businesses can't stabilize and feel certain that there is a market for growth, we won't see the changes we want in a dynamic and exciting city."
And finally, Brian Sharples, whose company HomeAway Inc. raised a record $250 million in November:
"Biggest hope: Austin has always been powered by creativity and optimism. I hope we all keep a positive attitude — and everyone will be just fine.
"Biggest fear: That the less optimistic people from other parts of the country decide to move here." |
