Though this post is great it makes me worry the tech sector has learned nothing from the past. If you're worried about the stock market and the climate for IPOs and acquisitions you've failed to learn the lessons from the 2000 bust.<p>Quick refresher: After the first, big dot-com bubble burst a new ethos based on its lessons spread and came to dominate biztech thinking for at least several years. It emphasized slow, organic growth; revenues exceeding expenses from almost the very start of a business; and a bootstrap self reliance that said you pay for growth from income, personal debt (credit cards) and maybe some very trusted seeders (friends and family). Think Joel Spolsky, 37signals, Paul Graham. This was the start of the deprecation of VC.<p>People were receptive to this message not only because VC was discredited and largely AWOL, and because so many revenueless VC backed companies had blown up, and because Spolsky Fried and Graham were such articulate writers, but also because servers and bandwidth and hosting services got so cheap in the early aughts. You didn't need VC to get up and running on a Sun with Netscape Enterprise Server any more; you could conceivably launch with a VPS running a free LAMP stack for $100 month or less.<p>It seems to me a lot of this very sensible, fundamentals-oriented thinking has been lost in the last several years. You still see a lot more bootstraping than in the first boom, don't get me wrong, but you also companies taking loads of VC to stay afloat, before they have a real revenue source, just like in the bad old days. The biggest companies doing this would be Twitter and Foursquare but there are loads more smaller ones beneath them in the same boat obviously. Even Spolsky who partly made his name railing against dot com era VCs (e.g. <a href="http://www.joelonsoftware.com/articles/VC.html" rel="nofollow">http://www.joelonsoftware.com/articles/VC.html</a>) took VC for Stack Exchange, a startup without much revenue (though the tech and user experience is superb and the whole Careers 2.0 thing <i>could</i> produce some very solid revenue some day).<p>All of this is a long way of saying, if VCs had been investing in the 2001 style all along -- companies with a demonstrably viable business plan; with real, substantial and growing revenue streams; and with a specific identified use for the capital invested, with plausible scenario for how it would be returned to investors (not IPO/acquisition lottery) -- they would have no reason to worry about the public market because the model for return on their investment would have to do with the income of the company and not the existence of lots of Greater Fools in the stock and M&A markets.
At the end of the day, if you're a VC you've raised a fund to invest, not sit around and wait to see what happens.<p>What is the outcome one could hope for by not investing in promising companies? Waiting for lower valuations? Weeding out the riff-raff?<p>Is that the best use of a fund's time?<p>There are going to be good and bad companies no matter what the rest of the economy looks like. Figure out your thesis and stick to it when you invest. But don't just sit there.
It seems pretty clear that public companies (with recent IPOs especially) are most affected; seed stage the least. Raising a seed or A round really <i>shouldn't</i> be any different (the sums involved are smallish for the funds, even with multiple investments and reserves), but it's entirely possible it will be (or, that it will be used as an excuse).<p>I'm going to hypothesize that the push to cloud, and need for improved computer security, is a much much stronger positive trend than the current economic issues. I'd be more concerned if I were a B or IPO stage company which relied on local/state/federal government sales (e.g. some kind of government-optimized CRM), or maybe an expensive consumer product. Genuine luxury seems like it should do ok, especially non-deferrable luxury servies, but "aspirational luxury" for middle class and lower class might suck. However, really cheap entertainment might win, too -- much better to be video games than movies in a downturn.
While I think Mark's article is insightful about macro issues, I have a different perspective on how VC firms should react. I will never forget the partner meetings we had when the bubble collapsed in 2000. The lessons of the years that followed immediately after the collapse always stuck with me. First of all, we are long term investors (VCs as a whole). I saw numbers recently that the average time from Series A to exit was up to 8 years. Managing through that entire lifetime means that a Series A investor that is looking at the public markets is looking in the wrong place. What the public markets are going to be doing in 8 years is the real question, and it is an unanswerable one. So we all have to build companies, real companies. An exit should be a pleasant interruption of the process of building a company. Building a company means planning for good times and bad (as a company and as a funder), not having to suddenly panic because the stock market went down. The only companies in my portfolio that need to react quickly are those in registration for IPO or in discussions with public acquirers whose stock prices just dropped.
Otherwise, it's steady as she goes.<p>One note I will make though, is that VC valuations do seem to track (irrationally) the public markets. After a crash is often a good time to invest, particularly if other funds do pull back, and competition is diminished.
> PIGS as it is called: Portugal, Italy, Greece & Spain)<p>Nitpick: initially it was PIIGS for Portugal, Ireland, Italy, Greece and Spain, especially since Ireland got worse much faster than Italy has, and Italy is still on the cusp, as it were.
Even tough I am not directly interested in startups (I enjoy a lifestyle of learning a lot from many consulting jobs) this article is the <i></i>best<i></i> article I have read about the economy in a long while.