Updated Nov. 24 with corrections from Mike Crill: Last Thursday, the Seattle-based Alliance of Angels hosted a panel discussion on “managing through an economic downturn,” otherwise known as “Downturnapalooza.” The panelists were Eric Best of Seattle-based e-commerce firm Mercent, Mike Crill of Bellevue, WA-based consulting company Atlas Accelerator, and Rob Arnold of Seattle-based bio-software firm Geospiza. Moderating the panel was our very own David Caffey, Xconomy’s West Coast head of business development.
Just a few highlights here, courtesy of Rebecca Lovell and Vandan Parikh from Alliance of Angels. I’m mostly paraphrasing the speakers, as I wasn’t present:
—Web 2.0 startups must adapt: Crill said that, of the four Web 2.0 companies Atlas Accelerator has in the hopper (out of more than 50 investments from the past three years), two changed to business-to-business models and are doing well. Another is struggling, and only one might survive with its initial strategy.
—Economic reality check: Arnold said that if you had a good business model before the downturn, you’ll still have a good model after, though it might take longer. The flip side, as Crill pointed out, is that “if you sucked before, you’re going to suck after.”
—Why Silicon Valley seems gloomier than Seattle: Crill said that Bay Area VCs had to tell their portfolio companies that the good times are over, whereas for angel-backed startups such as those in Seattle, there was always a different attitude, one of less exuberance.
—On funding expectations: Unless you’re building a $50 million-plus business, don’t bother with VCs, said Crill. The other panelists put the figure at $100 million.
—Advice to entrepreneurs: Best said you shouldn’t raise money on just a business plan, you have to have a product; also, look out for the competition’s customers, as the downturn might be an opportunity to grab some new business. Crill emphasized focusing on getting to cashflow break-even—don’t build your business on just getting to the next day. And don’t spend money now on new product development, “sell the crap out of what’s in the market already.” Arnold advised over-communicating with your investors, and not to think the downturn is going away anytime soon.
On Friday, Rebecca Lovell gave me a bit of angel-investor perspective on the current climate. “Experienced angels and VCs are focusing on the horses they’ve already backed,” she says. “We all recognize exits are taking longer, and people are buckling down in the next year. More and more attention and money are being sifted towards companies already in our portfolio. There’s a higher bar for a brand new opportunity…VCs aren’t even going to look at you unless you’ve got $5 million in revenue.”
For investors, this could mean special opportunities to get in on attractive deals. “We’re seeing deals this month we never would have seen before,” says Lovell. “Companies are coming to us with much more attractive valuations—they’re much further along than we used to see. Also, companies with revenues or intellectual property are not getting debt financed…We’re getting a crack at those deals we might not get in a different environment.”
