3 December 2008

Recession? What recession? Just follow the money!

As the US car giants beg the US taxpayer for a loan, and BA and Quantas float the idea of a merger, have you ever wondered what impact the recession is having on the technology sector?

This sector is in deep introspective mode right now, as the economists report that the world's major economies -- from the US, across Europe and Asia, plus Russia and China -- are either in or are about to tip into recession. But signs are that there remains a good deal of optimism here in Silicon Valley.

Back in March 2000, NetEvents made a video in which I stood at the top of Silicon Valley's Sand Hill Road -- which contains a high concentration of venture capitalists -- and asked how much longer the bubble could last. This was just before the bubble burst and the silly money evaporated.

So where the money comes from and where it goes are key indicators of the health of the IT industry. This fact drove me to Silicon Valley this week, where the second AlwaysOn conference is being held.

The event, held in a swanky hotel within sight of the Pacific Ocean at Half Moon Bay, is all about bringing together technology entrepreneurs and investors, and debating the issues of joint concern.

Oh yes, and there's tons of networking going on too. Everyone I spoke to said that this was a great opportunity to make deals, either finding start-ups for investment, or finding cash for new commercial ideas.

While there's a considerable amount of scepticism among investors at the current glut of variations on a small number of themes -- essentially Web 2.0, mainly in the form of web messaging and social networking, plus online advertising -- the overall mood remains positive. And there is money around.

I write this from a conference session entitled: 'Is Angel and early stage investing dead?'. The panel of investors onstage are discussing how they make investment decisions.

There's not as much cash available for investment as there was -- long-term Silicon Valley angel investor Ron Conway, who says he's has money in over 200 companies, reckons that "anyone raising capital needs at least 18 months of investment cash" and that, in his opinion, a company with less than a year's cash in the bank is in intensive care.

These numbers are far more conservative than they would have been a year ago, the panel agreed. Investors are more cautious than they were.

However, Conway also said: "The quantity and quality of my deal-flow haven't fallen. Unlike the technology bubble....my pace of investment is staying the same." Others on the panel were in broad agreement, along with a need for start-ups today to be more focused on customers rather than technology, which has often previously been the case. Howard Hartenbaum from August Capital said: "My attention is now directed towards the companies who already have customers." I heard this kind of comment from several people in the investment community during my conversations with conference attendees.

But what's different between this recession and the post-technology bubble period is that the epicentre is not the IT sector but Wall Street, as one panellist remarked. In other words, the money men reckon that the technology sector has better chance of coming through the recession.

As a result, people are looking ahead to the good times but they also realise that investments will go elsewhere such as Russia, China and India.

And what's hot, according to the investors? The answer is green tech, life sciences, mobile technology, digital entertainment, search through crowd-sourcing -- and cloud computing.

Remember, investments can go down as well as up. But then, you probably know that....

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