Monday

Goldberg & Sack on the Downturn

This is gearing up to be a crazy economic downturn. It’s something none of us have ever seen, the economy is downright rotten to the core, and no one really knows what to do.

XConomy.com recently attended a talk by Michelle Goldberg and Andy Sack, from Goldberg  & Sack, and they were nice enough to post the main takeaways from said talks. They talked about startups, the economy, and most importantly: funding.

Here are the takeaways:

•    Valuations are down: If you raised money, you’re going to raise a lot less. The problem comes when you never raised any money, what happens then? Well, your chances of getting it are as big as my chances of becoming President.
•    Pitches are up: People need money, and they’re going out of their way to get it. What does this mean for investors? They’re getting more and more pitches, to the point that it’s starting to get annoying.
•    Your next financing is your last: It might not be, but you have to think abut it like that. This way, you’ll be mentally prepared for a hot hot summer.
•    With exit marks closed, VCs are opportunistic: There are no exits any more. This means investors are really looking into companies to see how they can make them better, and maybe even provide an unforeseen exit. This is both good and bad for the startup entrepreneur. It’s good because they’ll have more help from investors, but they could get annoying.
•    It’s about who you know: If you know people that can help you out, it’s time to call in some favors. Why? You have more chances of making it and getting funding if you know people. If you don’t know people, it’ll take more time for them to get to know you and company.

•    Get money from costumers: Free? What? Are you crazy? Bootstrap the heck out of your startup and get money from costumers. This is the only way to make it.
•    Think about exit potential: Even though exits aren’t all the rage right now, you must still think about them. Why? Because an unforeseen exit might come knocking, and you’re going to want to embrace it when and if it comes.
•    Trends that are more likely to make it big: Health care, entertainment, banking, real estate. If you can make it in any of these areas, then you’re going to be way better than everyone when the eminent upturn comes.
•    Trends to shy away from: Web 2.0. Why? Well, it doesn’t really make money, and people (read: investors) want to make money. If your startup doesn’t make money, and your business plan consist of getting millions upon millions of users, then you’re not going to make it. Sad, but really true.
•    Strong Angel Investor Communities will thrive: If you’re in an area with strong and active investors, then you’re more likely to survive the downturn. Investors like to invest locally, and if you’re in a hot spot (think Seatlle, or Silicon Valley), then you have more chances.

This is all very interesting. It’s nice to get someone’s point of view, specially if that someone knows what they’re talking about. On the whole, if the economy is breathing down your neck, waiting on your startup to crumble, don’t worry (well, do worry). Keep your head clear and work towards the goal of surviving. Why? Well, my friend, surviving is your only exit strategy right now.

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