Friday, October 10, 2008

What does the Wall Street meltdown mean for technology start-ups?

The technology start-up sector has weathered many a storm even though it’s a fairly young sector in the big picture. Not too long ago we had the dot com bust and then the 9/11 meltdown and we wondered what would become of the Internet after the hype vaporized. The world did not come to an end. It was the bursting of a bubble, “irrational exuberance” as Alan Greenspan once said and several years later, yet another bubble has caused today’s meltdown. Once again, it will not be the end of technology and innovation. Since the last Wall Street meltdown of 2000-2001, technology and innovation continued quietly, the seeds were sown and great companies emerged by the middle of the decade. Take Google for example; in 2000 – 2001 when the dot com bubble was deflating, Google was in its infancy and Facebook was not even around, nor was Linkedin or Myspace. If you mentioned a social network, no one would have known what you were talking about! Let’s go back even further to the 1980’s when Apple burst onto the stage in 1984. Apple was in its incubation in the late 1970’s when there was stagflation in the economy. What does this mean in terms of raising cash? Start-ups were not really in the pool for lines of credit anyway so the current credit crunch isn’t likely to impact directly. Angels and VC’s will continue to invest, after all, where will they get growth for their cash and it won’t sit around forever. What we can expect is a tightening up of the investment criteria. The next 6 months will be hard no doubt so be prudent and conserve. Investment will come but at a dearer price tag and it will be slower; consider it like a half off sale. The U.S. has historically been extraordinary at incubating technology companies and right now the foreign investor is also looking for a place to put their money. Continued technological innovation will be the key to turn this economy around. The Internet has shown us that great ideas can scale and become big business very quickly. Yes these are hard times, but America has and will survive. Comments/Questions about your business concerns? Blog away!


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