We work with start-ups that are in various stages of fundraising.  I often talk with entrepreneurs about raising money and do what I can to make introductions.  In some cases, we’ll convert a small percentage of our services fees into an investment, so we know what it’s like to have some skin in the game.  We work with clients we believe in, regardless of our “participation,” and love the excitement of early-stage companies.

Having started Viget in 1999, we went through a bit of the tech bubble and all of the bust, and we learned a lot of lessons.  One was: no matter how good it gets, don’t bet the farm on start-ups.  So, we continue to balance our client list with traditional offline companies as well as start-ups, and that balance benefits both kinds of clients in addition our staff and our company.

There continues to be mainstream talk of a recession, and some VC’s are talking about what a downturn could mean to the investment community and start-ups seeking funding.  Even as we grow and expand, we talk about it internally — should we be concerned?

Even in a broad economic downturn, the direct underlying metrics we care about all should continue to grow: broadband adoption will keep bringing more and more people online, those people will continue to do more shopping online than off, social networking and relationship building will keep exploding, and advertising dollars will keep shifting to the web (even if ad spending were to decrease overall, it would increase online).  It might not be quite that simple, but generally speaking, any downturn will impact other industries much worse than ours.

A local VC and I recently discussed the possibility of a down-turn in relation to the two major exists an investor looks for:

  1. IPO.  A recession would discourage the IPO markets, meaning fewer IPOs and fewer big exists.
  2. Acquisition.  When there is broad economic uncertainty, bigger companies tend to focus inward.  They batten down the hatches.  This makes them less aggressive in going after deals, and reduces the number of deals done.

To this end, VC’s may be more inclined to look for longer-term deals that could outlast a 1-2 year slump.  They need to be in it for the long-haul.  As Fred put it:

“I do not think we’ll see VCs closing their doors to consumer focused companies.  What I think we’ll see is a flight to quality. … Assess what is working and what is not working in your business or your portfolio. Focus on the basics. Keep your costs down.  Finance your company (or companies) intelligently …”

I’m neither a VC nor an economist.  I’m skeptical of mainstream media’s portrayal of the current economic conditions, but I’m probably more skeptical of an overly optimistic view-point.  Progress and innovation often happen under pressure.  I’m not foolish enough to hope for a recession, but if concern over a slowing economy puts pressure on start-ups to prove a real business model (that actually makes money) faster and investors to make longer-term commitments (rather that target fast money), I think that’s good for everyone.