Thursday, December 25, 2008

Happy Holidays and a very good 2009!

2008 can be split into 2 distinct periods. Pre-crunch and Post-crunch.
In the coming days we will all be reflecting on a pretty crazy year and most will be fearful, uncertain or excited by the coming one.
I think we are all agreed that 2009 offers significant opportunities and challenges.

We are in for some very tough times. The funding climate has changed radically and the chill wind is blowing.
All sensible companies are focusing on their cash. Getting themselves to break even as quickly as possible and focusing more intently on what makes a difference than ever before.
TAG companies are all looking closely at their costs, their revenue generation and their cash runways. They have been for some time now.
The opportunities are still there - but may be found in different places from the pre CC (Credit Crunch) era.

Certainly, competitors may be hurting and this will represent opportunities for some. Businesses that genuinely remove cost, save money and increase efficiency will be attractive as will those with well proven business models and with revenues continuing to rise.

Interesting to look at what date defined the start of the credit crunch.
For the tech community at large, it seems that Sequoia Capital’s publication of their 56 Slide Presentation Of Doom - October 7th,2008 - marked the date.

It was much earlier for most others.
On 22 February 2008 Northern Rock was taken into state ownership. On September 15, 2008, Lehman Bros. filed for Chapter 11 bankruptcy protection, the filing marked the largest bankruptcy in U.S. history. On September 16th AIG suffered a liquidity crisis following the downgrade of its credit rating - it had been the 18th-largest public company in the world! And so it went ...

Certainly, if one was looking for signs (and who was?) we could go back to March 2007, when the United States' subprime mortgage industry collapsed due to "higher-than-expected" home foreclosure rates.

However for the tech start-up scene, the fundamentals are still strong. Technology is likely to lead the way out of recession for many economies. Better application of technology leads to lower costs and greater productivity. Broadband penetration continues to increase, eCommerce is holding up. December numbers are not out yet but November continued to show on-line gaining share from off-line. So it is with advertising. Whilst there is an overall slump, on-line continues to win share from off-line.

Of course, what has changed is that it is much more difficult to get ideas funded, values are not what they were and exits are very hard to achieve.

The idea that the funding community is closed for business is, however, not entirely correct.
The big brand Venture Capital Funds still have money to invest and in our view most will be successful in raising new funds - as Accel have recently.
Angels will return to the funding scene seeking capital efficiency and opportunity.

Since October 7th, 9 of TAG's companies have received follow-on funding (or have term sheets leading to that end).

As regular readers know, this blog essentially showcases the TAG portfolio. Since the portfolio is pretty well representative of the tech start-up scene, I hope that it of wider interest than just to friends of TAG.

Good luck in all your 2009 endevours!

To finish off this serious post, I share with you the movie that our friends at First Round Capital produced for the season of goodwill.
First Round are a special kind of firm with whom we share many common values - some of which are reflected in this video.

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