Startups: Finding the upside of a global downturn
Editor’s note: Research Triangle serial entrepreneur Vivek Wadhwa is the Wertheim Fellow at the Harvard Law School and executive in residence at Duke University.
DURHAM, N.C. — It is not surprising that there is doom and gloom in Silicon Valley these days. For venture capitalists, the effect is magnified because they see no exit scenario for years to come for their portfolio companies. And the CEOs in whom they invested will see the ugly side of their investors now.
But that doesn’t mean that it’s the end of the world for new entrepreneurs, or the 99.9 percent who don’t depend on VC funding. In fact, this is the time for laying the seeds – like after a forest fire. That is what my latest BusinessWeek column talks about.
Coincidently, just as this column was posted, I spoke as a panelist at the Stanford Institute of Economic Policy Research. I also listened to Mark Kvamme of Sequoia Capital – the author of the recent “RIP Good Times” (a presentation that has received so much international attention). He couldn’t have been more negative. The dozens of students in the audience who wanted to become entrepreneurs must have felt totally discouraged. Every slide was more depressing than the last.
I challenged Kvamme on this and cited the points I made in BusinessWeek.
Surprisingly, he said he agreed 100 percent. “A recession is not a good thing to waste” were his words. In fact, he said that it was fortunate that when John Chambers came to the Sequoia offices after the 1987 crash, that he wasn’t there … because they ended up funding his startup. Cisco would not have existed if Chambers had acted on the doom and gloom which VCs felt. Kvamme agreed that there could be no better time for startups than now.
(Note: Here is a portion of Wadhwa’s BusinessWeek column)
In early October, Sequoia Capital summoned executives at its portfolio companies for an urgent meeting to discuss survival in the economic downturn. The presentation at the meeting, titled "R.I.P: Good Times," quickly made its way onto the Internet, adding to fear in the startup community in Silicon Valley and beyond. Sequoia, after all, is one of the most respected venture capital firms in the country, an early backer of Google and several other huge technology successes. One takeaway from Sequoia's presentation was clear: With the economy souring, now is a bad time to launch a venture or to expand an existing business.
Or is it? The founders of Johnson & Johnson, Caterpillar, McDonald's, and Walt Disney might not agree. All of those companies were founded during an economic downturn. So were Adobe, Intel, and Compaq. Bill Gates didn't let a recessionary environment stop him from launching Microsoft. Chuck Schwab founded his discount brokerage during the recession of 1974. And in 1982, U.S. unemployment was soaring to the highest levels in decades; that didn't stop Scott McNeely and Vinod Khosla from launching Sun Microsystems. In fact, 18 of the 30 current Dow Jones industrial index companies were launched during economic downturns, according to research by Reference Capital Management, a venture capital fund based in Tigard, Ore.
I, myself, have been through the startup process twice, in both economic ups and downs. My first company, Seer Technologies, was conceived at New York investment bank Credit Suisse First Boston after the market crash of 1987. The bank soon needed to divest key technologies. Despite the gloomy economic market, by 1989 we had raised the capital needed. And with almost no competition in sight, we grew the startup to a public company with $120 million in revenue in 1995.
The remainder of Wadhwa’s column is available online at BusinessWeek.
Featured
E-mail Preferences
