Peter Principle

A couple of stories in the NY Times review the Venture Capital climate in 2008, and make some predictions for 2009. The stats from last year were pretty grim:

Only six venture-backed companies went public last year, the fewest since 1977 and down from 86 in 2007, according to data released Monday by the National Venture Capital Association and Thomson Reuters. Venture capitalists sold 260 companies, down from 360 in 2007.

In the fourth quarter, there were no initial public offerings and only 37 acquisitions, compared with 31 public offerings and 88 sales in the fourth quarter of 2007.

IPOs a thing of the past?

Despite the credit crunch, the VC fund freeze, and the stock market meltdown,  panelists at the AlwaysOn Venture Summit think that “good companies” will still be able to go public. Someday.

Before that happens, a lot of other marginal companies will go out of business.

It’s the circle of life, Simba.

Meanwhile, what advice do these experts have for struggling companies?

“Everyone should act as though there will not be another round of funding,” Buyer said. “You should operate with what you have, because it may be all you get.”

The NYT reprinted an email sent by angel investor Ron Conway to his portfolio companies. And it is the same message that he sent out in May 2000: Godfather Tells Start-Ups to Fire People and Raise Cash.

You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.

If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible but face the fact that if you can’t raise money now you must cut costs.

Now, I wonder what advice he has for employees at those companies?

I.P.O. Crisis Could Have Lingering Effect on Start-Ups

Many think start-ups won’t have a shot at an I.P.O. until 2010. If the United States is in a recession that lasts through 2009 and if the credit markets remain closed, only a very high-profile company would be able to make its debut [...]

Venture investors who had planned to take companies in their portfolios public this year are left spending money and time keeping these mature companies alive, instead of investing in new start-ups.

According to Prof. Bill Dally, chair of the computer science department at Stanford, Wall Street’s collapse may be computer science’s gain.

The collapse of Wall Street may help make computer science and IT careers attractive to students who abandoned these fields in droves after the pop of the last big bubble, the dot-com bust of 2001.

“Many thought they could make more money in hedge funds,” Dally said. He said students are returning to computer science because they like the field and not because it can necessarily make them rich.

That’s right. Those kids better not believe they’ll get rich with a computer science degree.

If the dot-com meltdown wasn’t enough, offshore outsourcing also scared away students from technology. In 2004, Carly Fiorina, then CEO of Hewlett-Packard Co., summed up the offshore trend this way: “There is no job that is America’s God-given right anymore.” Fiorina is now an adviser to Republican Sen. John McCain in his bid for the White House.