As a venture capitalist, I get a somewhat high level view of the economic landscape affecting startups. While I’m sure it’s not news to anyone, from my vantage point it does appear that the enterprise technology slowdown is now real. Startups that I met with several months ago have been returning with lowered plans. More sadly, several startups that were not able to raise funding from us or other venture firms have thrown in the towel based on slow revenue traction. Forrester research’s just released CIO study confirms that overall IT spending is down. My perspective is that Q2 enterprise IT spend was not healthy and Q3 will be worse.
Technology spending slowdowns tends to lag the overall economic environment by six to nine months, both entering and leaving the recession later. Having weathered several cycles like this one, my partners agree with this assessment. Since the overall economy does not seem to be showing any signs of an immediate recovery we may be in for a longer wait for the recovery.
The feature of this recession that most worries me is the health of the financial services industry. Financial firms THE huge buyers of technology, and tend to be THE early adopters of new technology solutions. The Forrester report mentions “IT departments in the financial services industry were hit hardest — 49 percent of IT shops in the financial services sector have cut their budgets.” Given the huge writedowns at the largest banks, I don’t see this level returning to healthy levels anytime soon.
However, this mean that everything is going to hell in a hand-basket. A tightly run technology startup can prosper now - if it is well capitalized. It’s easier to hire good engineering talent during tough times, as larger companies will begin to reduce staff and people will be looking for something new and exciting. However, this all assumes that revenues are not necessary for making payroll and that the startup is more in the “development” phase than the “selling stuff” phase. VCs seem to have continued optimism that the market will eventually right its-self… it’s just a matter of making it to the other side of the tunnel.
Sorry for yet another doom and gloom post… hopefully I won’t have reason to post another one anytime soon.
September 9th, 2008 at 4:07 pm
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September 11th, 2008 at 2:53 pm
Great article, and I think you’re right.
This was partly the motivation for HubSpot raising it’s Series B as early as we did. We wanted to get some cash in the bank, which would take us for a while.
Worked out well so far.
September 11th, 2008 at 3:45 pm
Dharmesh,
As one of my old bosses used to say… “the worst time to raise money is when you really need it.” From the outside, it looks like HubSpot is using its capital well! Good luck as you grow the business.
Healy