Monday Note

So, awright, we have a real new president. Some in the kommentariat found his Inaugural Address “average”.  Others, such as the NYT’s editors, gave it carefully weighted yet eloquent praise.  I enjoyed the sobriety, the quality of the language, not too everyday, not too clerical or esoteric.  Above all, I like the call to collective responsibility and Obama’s view we don’t need to choose between our security and our principles.  In other words, no torture.  The Statue of Liberty can uncover her eyes, wipe her tears of shame.  And maybe join the crowd and cry for joy a little.

Back to work.

In the Valley, we’re happy and worried. Sure, we like the “back to basics”: Science is official again and hundreds of billions will be spent in rebuilding our “infrastructure” meaning the roads, bridges, levees, electric grids we sacrificed to short-term profits.  There must be room in there for our start-ups to get in and help.  But only at the margins: the big bucks will go to the big civil engineering and construction companies able to design and build on the required scale.
I hear manly “We’ll innovate out of the recession”.  Certainly, this depression, not recession, will not curtail our imagination.  Hungry entrepreneurs have more imagination than sated corpocrats.
But there is a necessary condition, one out of our control, one without which nothing will work.  Nothing.  Not our “own thing”, our VC business, but everything.  As you guessed it, I’m referring to the financial system.  More specifically, to the restoration of trust.  For example, today, banks have money but don’t lend it out, they sit on it because they don’t trust the borrower’s capacity to pay up.  Would you lend money to General Motors, or to a big or small home builder, to a shopping center project?  Nothing inherently wrong with being cautious but, on a system-wide scale, fear becomes a self-fulfilling prophecy.  We’re stuck.
So, we hope the “rebuilding the infrastructure” talk will translate first into rebooting the financial system, if only to finance these projects, to pay contractors, materials and salaries.  If the financial system works again, we’ll take care of the rest.
.
But how, where?
.
For the how part, the economy makes everything less expensive: salaries, offices, servers, subcontractors, components.  That’s the good side of a bad situation.  Not so long ago, we couldn’t find software engineers, we had to go to Bangalore or Prague.
Further, as engineers see the layoffs coming, they work on their next project while still employed, a Silicon Valley tradition of debatable ethics but a tradition nonetheless.  Most startups were born on a bigger company’s payroll.  We see no let-up in the number and quality of new projects, we call this the deal flow, we even expect to see more projects as independent-minded people see they have to get out of shrinking organizations.
For us, as we know growing a company takes years, three, five or more, startups we invest in now will gestate, soberly, inexpensively, during the depression and, we hope, be ready when the economy is.
As to where, Web 2.0, e-commerce, widgets or social networking are out, mostly.  Today, we’re investing in what we broadly call mobility, security and, more generally, compliance.  The latter word refers to the large number of financial, healthcare and privacy regulations that are sure to come from the new administration.  We also see more and more cleantech/greentech and energy-related opportunities.  The received wisdom says entertainment is recession-proof, we don’t believe this and, as a result, stay away from that sector.
.
Still, on the worried side, we have no idea how far down we’re going to go before we see growth again and we put less faith than ever in our views, optimistic or not, of this uniquely unstable situation.  —JLG
.

Related columns:

1. Seven statues for Steve Jobs TweetFor this week’s Monday Note, the plans was to calmly traverse the field of investment opportunities as redefined, upended is a better word, or narrowed, by what is shaping up as depression.  I used to write recession or recession/depression but, now, even the Washington sages are now losing their calm.  Today, they’re conceding: the bailout [...]...
2. Things to watch in 2009 TweetNo predictions, no forecast, that’s above my pay grade, just sifting through this coming year’s most interesting trends.  The Chinese curse, May you live in interesting times, being upon us, we might as well try and make the best of this New Year. . Quickly, starting with the Valley: . -    How many venture firms [...]...
3. Venture Capital in Bad Times TweetHere, meaning in Silicon Valley, we’re not waiting for Obama – even if we look forward to his injecting physical and psychological stimuli in our economy. A week ago, our President-elect was politely spinning the “there’s only one President” line, meaning he didn’t want to interfere with Bush’s struggle to right the ship.  But, this [...]...