TechWag

Image by rogilde via FlickrThe world of Venture Capital, the world of Angel funds, startups and the rest of it are all looking at a protracted and company killing slowdown in just about every economic sector worldwide right now. From the Inquisitr to CNet, Paul Kedrosky and GigaOM everyone is saying the party is over. For many of the smaller companies that are not in a solid business, or are relying on revenues that have no hope of showing up, that is going to be true.

As always with any dooms day scenario, there is always a silver lining, because we will see the healthier companies have an opportunity to start doing M&A at fire sale prices. If you can afford to purchase all your competitors in a market niche, then you stand a great chance of owning the niche when good times return.

If you are in need of money, and need to go meet the angels in town, then you need to plan at least 9 months out, and more like 18. If you don’t think you are in need of money, go meet the angels anyways, because they will give you good advice and that alone is worth the price of admission, worth the price of the pitch.

The sad reality is though in this recent spate of technology building, we didn’t see a party much like we did in 1999, we saw a lot of cool things, but IPO’s were scarce, and exit strategy meant being bought out. There was a lot of M&A activity, that made many overnight millionaires, and this round of technology boom was centered on M&A as the exit strategy. Was that really a good time? If you look at products or groups that were bought out by bigger companies, many of them languished through lack of love, many of the people who developed the product moved on because they didn’t want to work in a large company or never learned how to navigate a larger company. The party never really got started for abandoned but purchased technology at Google, Microsoft, eBay, and a host of other larger companies.

VC’s and Angels still have reason to celebrate the exit worked and they made money. The people who started the company also made money. And there will still be M&A activity even in the down turn, they won’t be as expressive as billions of dollars or millions of dollars, the new M&A might work out to break even but here is the other silver lining.

M&A activity frees up people who have money to go out there and do something wonderful again. People do not just have one idea, and once they have started and sold a company they have much more information on how to do this right. Fire sales are going to free up talent, and money that would otherwise be stuck with an underperforming company, with little to no hope of return. Closing the companies’ doors also frees up talent, if not the money side of the house. Once you have been “bitten by the startup bug” few will ever go back to the large company. Smarter people come out of the process; better ideas come out of the process. Meaning the third tech boom starting in a neighborhood near you now is going to be made of entrepreneurs who are smarter than they are now. This just increases survivability when the third tech crunch comes in play in about 8 years (following history).

While the party might be over for some, the party is just getting started for others. That is the thing to remember, the next big wave is already here and getting started. If you forget that, then you will be playing follow up and catch the leader in 2011.

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