Welcome, Rotten Tech IPO Market

Kevin Maney counters: The news about the crummy tech IPO situation seems to worry a lot of people. But some of the best technology gets built in times like these because there is no quick payoff.

In the past quarter, for the first time in 30 years, not a single tech company went public. So far, that's more of a blip than a trend, There's no reason to belive this situation will last forever. Still, you've got folks like Mark Heesen, president of the National Venture Capital Association, calling the news a "crisis for the start-up community."

Bah. It's a crisis for the kinds of people who do tech start-ups mostly to get rich. Let them move back to Greenwich and become hedge fund managers.

When there's no IPO exit, tech start-ups have to do one of two things: try to get bought by a big company like Cisco or Google, or build an actual, working business with profits and everything. The former is a heck of a risky strategy. The latter tends to push start-ups to spend more time getting it right. Many of the major tech companies were founded in shaky economic times: Microsoft in 1975; Cisco in 1984; MySpace in 2003.

There's another element, too: The cost of starting a company in bad times plummets. Rent is cheaper, computers ditched by some bankrupt start-up can be picked up used, good people can be hired for less. As it is, the cost of starting most kinds of tech companies is one-tenth what it was 10 years ago, because the technology and tools have gotten so much cheaper and more effective.

So a company that needed $5 million just to get off the ground in 1998 now needs maybe $500,000. More and more, that money is being raised from private investors instead of venture capitalists, and the money is more patient -- not pushing so hard for an IPO payday. Again, that's probably better for the long-term prospects of a start-up.

It wouldn't be good if the IPO situation stays this bad for very long, but it's not the end of the world, and it's no worse than when the IPO market is ridiculously hot and people are starting companies with nothing but dollar signs in their eyes.

Add Your Comment

Report Abuse

Archive

Categories

Links