A saying repeated over and over in the technology industry is that the best time to build a company is during a downturn.
Many entrepreneurs are testing the theory by forming their startups this year, when many more established companies are cutting jobs and, in some cases, shutting down.
Optimistic? Definitely.
Foolish? Only time will tell.
"There has never been any doubt that we were going to go forward," said J.R. Johnson, chief executive of Lunch.com, a Web site for reviewing everything from restaurants to books to shoes that will be formally introduced later this month.
No official count of startups exists. But it's clear there are plenty judging from the jockeying at technology conferences, like recently at the Web 2.0 Expo in San Francisco, where more than 80 new companies applied to get on stage and be critiqued by a panel of Internet-industry veterans during a session dubbed LaunchPad.
Many entrepreneurs had started work on their projects more than a year ago, when the economy was weak, but before it went into free fall. Although they would have preferred to premiere in better times, the founders are still hopeful that their companies can get traction and believe that the slowdown may help them in the end because of less competition.
Johnson is drawing on his experience leading VirtualTourist, founded in 1998, through the dot-com bust, 9/11 and the U.S.-led wars in the Middle East. He eventually overcame the adversity -- "one blow after another," as he put it -- and sold the company along with a companion site to online travel giant Expedia for $85 million in 2008.
Now, Johnson faces a similarly bleak business environment with Lunch.com, a company that he and a partner funded from their own pockets. His investment in the Web site, which has 28 employees, is approaching a few millions dollars.
"The downturn doesn't scare me so much because I went through it before," Johnson said.
Venture capital, the lifeblood of many startups, fell 33 percent during the fourth quarter of 2008 to $5.4 billion, compared with the same period a year earlier, according to the National Venture Capital Association and PricewaterhouseCoopers. Wary about the survival of startups, and in some cases, hoping to get better valuations later, venture capitalists are being more selective about what they invest in.
Sales of startups have also dropped. There were 56 acquisitions during the first quarter this year, down 54 percent from the comparable period in 2008, the National Venture Capital Association and Thomson Reuters said this week.
Like the rest of the business world, startups have suffered, underscored by layoffs. Some young technology companies have been forced to shut down after their money ran out, with their names added to ignominious online lists of the dead.
Many entrepreneurs are inspired by the idea -- virtually a mantra among tech insiders -- that downturns are a great time to build a company. Google, which was founded during the boom years, but came into its own during the dot-com bust, is a frequent example, as is Blogger, a blogging service that Google eventually bought.
Granted, there are many counterexamples. But no one focuses on those.
(E-mail Verne Kopytoff at vkopytoff(at)sfchronicle.com. For more stories, visit scrippsnews.com.)
Must credit the San Francisco Chronicle
Post new comment