Recently, it was the TechCrunchTalk and ChristmasCrunch Party, which focused upon how the online startup community is being affected by the looming recession.
Some 400 people attended the event to hear how the landscape currently looks for new internet businesses, and to try to understand what will happen in the near future.
Econsultancy caught up with Mike Butcher, who was hosting the occasion, to gain further understanding as to what the thoughts are amongst the influential investors, current companies and the digital experts, including Mike’s own thoughts and impressions.
After a good few years of optimism, the general thought seems to be that internet startups are once again being affected by limited opportunities to raise finance. Given the economic environment, what’s the startup landscape really looking like?
It is absolutely the case that the market will be affected, but what will happen, as happened during the last slump, is that business models will change again.
This time, startups will bootstrap from the word go, rather than raise finance first. They will have to get revenue faster, which means they will introduce monetisation faster; whether it be premium services, performance based advertising, white-labelling, you name it. We will also see the rise of more lightweight e-commerce startups in new niches.
There have been some great new startups that have deserved to win the backing of investors. Which ones in the UK and Europe do you particularly rate or admire?
I go with both the startups and the entrepreneurs. Really standing out in the UK are: Huddle, Rummble, Skimbit, Groupspaces, TheFilter, Coull, Trampoline Systems, Hubdub and WAYN, amongst others. And in Europe, Qype, Netlog, AskMarkets and Soundcloud.
Do entirely new startups have a chance, or will ideas have to be put on the backburner until the ‘crunch’ softens?
There’s nothing to stop a really great idea, but if you can’t get to revenue fast in this market, then you will have to be so good the VCs will fund you.
However, VCs will be less interested in early stage startups and watching the ones that can make it to revenue with a close eye. The equity gap is about to return and only professional Angel investors, dedicated tech Angels, will stay around. But many of them have been left exposed to the downturn.
That leads nicely into the next question. To what extent has the downturn affected the VCs? Are they nervous, or have they been hit financially? They’re hunkering down again, it seems.
The top tier VCs like Accel, Balderton, Index, Wellington, DFJ Espirit and Atlas all look robust, but mid-tier and smaller VCs have been hit and will have trouble raising funds. Hedge funds and private equity are in bad shape, for obvious reasons.
Supposing the main threat to startups, or at least the ones that have taken money, is being unable to preserve cash and being forced into making layoff, is there an argument that many VC-backed startups didn’t learn from the lessons of the first dotcom crash?
No, not really. Each business runs on its own merits and there is enough experience in the market now to hedge against many of these problems. However, it’s the startups that were encouraged to grow prior to funding that are feeling the most pain, especially when the term sheet was not signed, after all.
To what degree did any of these guys jump on the Web 2.0 bandwagon? Have you got any examples of obvious stupidity?
Naked is a prime example. They were a social messaging start-up that went into administration back in May this year, after only launching in February with private beta testers. It’s well worth reading about what happened.
At this point in time, do you believe that bootstrapping is the way forward?
Yes. But also startups should never have forgotten things like public sector grants. It sounds dull, but it’s money after all.
How do you think London compares to the likes of Silicon Valley, in terms of tech culture, risk-taking approach, and the whole entrepreneur scene?
It’s much smaller, but alongside Berlin, it has one of the most vibrant scenes.
London’s also become a great stopping off point for both Europe and the US startup and VC elite. However, it remains very expensive to set anything up in London, in comparison to the rest of Europe.
Are there any other places in the UK where we see a similar buzz of startup activity?
There is always a lot of chatter about other places. Leeds, Manchester and Brighton you hear about lots. The scenes there are smaller than London, but just as enthusiastic.
Following on from this, you travel a lot in your role at TechCrunch; are there any other areas around the world where we see internet startups thrive?
China definitely, due to low cost and talent. I would say Berlin is going to be a hot-house going forward, but many business models will have to change. Equally though, places in Eastern Europe, like Slovenia, are becoming interesting…
So finally, what does 2009 hold for TechCrunch UK?
Lots. We’ll be running more events in the UK and around Europe, taking the travelling circus of entrepreneurs and investors with us.
We’ll also be maintaining our editorial position, going after the best stories out there.