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Friday, March 13, 2009
The Startup Scene
Don't panic -- the worst is already behind
MHT's Jim Connolly: Pink slip parties make a comeback
Interactive map of Greater Boston tech layoffs in 2009
How is the economic crisis affecting tech companies?
The New England technology community has a unique advantage over most sectors of the U.S.: whatever this recession holds in store almost certainly won’t be a match for what the last one dished out. It’s worth keeping that in mind as a defense against the kind of overreaction that can lead to self-inflicted damage in the near term, and stop us from forging ahead when the national economy eventually revives.
True, everyone agrees (and the prophecy must therefore self-fulfill) that we are heading for the worst recession in decades. But it is also true that local developers refrained from wildly overbuilding, and many local industries (e.g., healthcare, defense and education) are less vulnerable than those that drive the economies of other regions. This is not Detroit or Ft. Myers, nor will it be.
If that isn’t comfort enough, consider the following ways in which we’re far better off going into 2009 than we were as we spiraled downward into 2001.
Infrastructure: In 2000, the country had just engaged in an orgy of Y2K systems upgrading. So much money had already been invested in hardware and software that new orders were destined to dramatically decline even without market turmoil. When the bubble burst in December, the IT industry took a double-barreled shot. Today, those decade-old systems are getting tired and a new class of innovations, such as cloud computing, promise cost saving incentives to upgrade.
Greater VC restraint: In 2000, VCs fire-hosed $104 billion into emerging companies. Only about 10 percent of that money funded biotech, healthcare, medical device and energy startups combined. Last year, VCs invested only $28 billion, of which 46 percent was taken in by startups in the same industries. The result: the 2000 money hired thousands who were soon unemployed when their startups were downsized or closed. Many fewer jobs are at risk today, and a much higher percentage of funded businesses should prove to be viable, promising future job creation.
No Bubble: Last time around, most of the venture and IPO money was directly or indirectly targeted at the Internet. When the party ended, established local IT and telecom employers suffered too. So did the local real estate and firms, PR agencies, investment bankers and other service providers that had grown apace with their venture-backed clients. In most cases, the impact was abrupt. Some well-established local businesses did not survive, adding further to the unemployment rolls. With fewer than half as many funding rounds in 2008 than 2000, service providers should be able to retrench rather than collapse, keeping more people employed and surviving to grow again.
Business models: One thing the Internet has changed is the cost of launching a new business. As but one example, new open mobile platforms offer opportunities for products and services that can be cheaply developed and economically marketed. So while venture and angel capital will be less plentiful, entrepreneurial opportunities of many types will still abound.
Been there, done that: Last and not least, the memories – and lessons – of the last downturn are still fresh in our minds. Unlike those parts of the country for which the time of our trials was a mere blip on the economic radar, New England growth – and debt - in recent years has been managed more conservatively.
There’s no doubt that the next two years will be times for tightened belts and prudent business decisions. But for technology in New England, the worst is already behind us – far behind.
Andrew Updegrove is a partner at Boston law firm Gesmer Updegrove LLP, and has been representing emerging companies since 1979. His email address is andrew.updegrove@gesmer.com.
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