Friday, October 31, 2008

Cash crunch curtails tech firm confidence

By Galen Moore

What a difference 30 days can make.

A month of bad news has eroded New England tech professionals’ confidence in their industry, according to back-to-back surveys conducted by Mass High Tech in September and October.

In September, only 5 percent of those who responded to Mass High Tech’s Pulse of Technology survey said they doubt New England’s technology industry can grow. But by October 21, when a second e-mail survey went out, that number had quadrupled. Now, nearly 20 percent of respondents are pessimistic.

Still, the overwhelming majority remains bullish. Among the 197 tech professionals who responded to October’s survey, 76.1 percent are at least “confident” in prospects for growth.

Entrepreneurial CEO Steven Ladd is among the optimists. His Andover-based startup, the tax software company Copanion Inc., plans a 100-fold increase in business and a 20 percent-plus increase in staff over the next year.

A downturn may be the best time to start a business, he said. “In really good times, it’s sometimes easy to imagine what one might do next and the thing after that,” Ladd said. “I assure you, we and many other companies are focused on what we are doing right now — real problems for our customers — and everybody contributing to that.”

But tech entrepreneurs are nervously watching the capital markets. In September, less than one third of survey respondents were concerned about access to capital. By mid-October, more than half were citing capital as the primary factor that could stunt growth.

Capital fears ran highest among respondents from the life sciences sector.

Bridgemedica LLC, a Walpole-based medical device development consultancy launched in May, saw its debt financing collapse in the credit crunch, said president Robert Pelletier.

“We actually had to go back and raise another private round, which we didn’t want to do,” Pelletier said. He and the other company founders had told investors they would avoid diluting the first round by meeting cash needs with debt, he said. “We have a good business plan and a good strategy and we’re in a good market, but the banks are still going to be slow and somewhat reluctant to loan. And that’s a little bit discouraging to us.”

For mid-stage companies, the current crisis has made a tough capital environment worse, said Tomophase Corp. co-founder and CEO Peter Norris. The Burlington-based company, founded in 2003, has developed an imaging technology focused on pulmonary diseases. New England venture capital firms are more interested in ground-up investing or large cash infusions for better-established products, Norris said. Meanwhile, mid-stage companies like Tomophase are hurting.

“Typically, it’s a gap of a few million that will allow you to get to the point where you’ve got a device that is close enough to market so that it will interest the big guys,” Norris said.

Market woes bruised confidence in the software business as much as any other, but companies in certain areas of the sector say they are doing well. Andrew Gelina, CEO of Needham-based Syrinx Consulting Corp., said in the next 12 months his company plans staff increases of 20 percent or more.

Syrinx, which develops software on Microsoft Corp.’s Sharepoint and Microsoft.net platforms, tends to build cost-saving solutions, like taking paper-based processes online.

In this economy, that’s an easy pitch, Gelina said. The company is heading toward 20 to 25 percent growth in 2008 over 2007. “We’re looking to do the same in 2009,”
he said.