A bit of indulgence from me here. One of my clients is a corporate lawyer, advising the tech community, both investors and companies looking for funding. His name is Richard Eaton and he works for Orrick.
He’s started a discussion on the Long Room, the FT’s discussion forum for City-types, re the prospects for tech companies seeking investment to start-up or continue in 2009.
The Long Room is a closed forum i.e. you have to be a member to contribute, so I thought I’d post here to offer an open forum for the new media community to view and/or comment.
It seems that Sequoia’s words of warning last autumn are staring to be echoed over here:
But does it matter if some of the less successful companies go to the wall now? We keep being told that failed companies are a badge of honour for entrepreneurs, so now is the time for many to earn their merit badges. The technology, if it is good, and, crucially, if it is capable of making a profit, will not die, but lots of it will be recycled. The entrepreneurs will start again.
The fact is that there are three key elements to the success of any growth company: the technology, the management and the market – what is the point in having technology so bleeding edge cool that is incapable of making money, or is backed by management that would not have looked out of place running a bank? But companies with good technology, that have good management that is capable of adapting to a changing world will survive: Google was born out of the dot.com crash. Ten years later it is a mature company. In this country, Autonomy continues to be one of the most attractive stocks in the FTSE100, because it has the basics in spades.
What does this mean for VC funding? Well without doubt, the market for funding is extremely poor. Poorer than any of us can remember. Expect to see VCs pull in their horns, drip feed money to their best companies, merge their ok companies and cut loose the rest. Yes there will be new funding, but on terms, and at the rates, that hark back to 2002. In ten years time, the best run companies with the best money making technology will be bigger and stronger. Will £1bn of government money help? To secure people’s jobs, it might do. To build great technology companies, I wouldn’t bet on it.