Cycles and Waves

There's and article in the Times today about the state of Venture Capital. The gist is the economy is tight and things are bleak. They see a shakeout coming in the VC industry and amongst startups.

There's no question that times are challenging.

I can't even describe the roller coaster week we've had and it's only Wednesday.

But bad times can build great companies that build value for investors. Buy low/sell high is far more lucrative and less risky than buy high/sell higher.

I started in the technology business in 1989. 1989 was a bleak time in the sector, you had to love what you were doing and believe in your product to work for a start up then. Jump forward until the late 1990s, I'm working at Yahoo! in the epicenter of the internet revolution. A different kind of person came to came to work at Y! in '98 and '99. They came not because they believed in what we were doing, but to stick around long enough to vest, flip their shares and cash out a million or two. The same thing happened in the VC industry, in a bubble all kinds of new VC firms show up to try to ride the wave. Most of them fail.

I do a little surfing (funny I write that as we're getting another foot of snow). To get on a wave you need to paddle before the wave starts to break, once a wave is breaking, it's too late to ride.

If you're for real, now is the best time to do a start up. It's a lousy time for wannabes to do a start up. It's also a lousy time for wannabe VCs and investors (and there are as many of them as there are wannabe startups).

This is not the time for a quick flip. This is the time to identify a business problem and solve it. This is a time for patient founders and investors to build important companies.