Friday, October 10, 2008

And Then The Wheels Came Off ....

Well that was - is - ugly. At one point today the Dow Jones was pretty close to the low we saw of 7,500 back in September 2002. Last time we were driven off the cliff by the dot com bust; this time it's down to real estate and too much borrowing.

So what does this all mean for Silicon Valley and venture companies? "Nothing good" is the short answer, but it's actually more nuanced than that.

On the side of doom and gloom, here's the take from the biggest of the big dogs, Sequoia Capital. If you are of a nervous disposition then sit down before reading. Actually, I think the most interesting slides are at the beginning where they present the macroeconomic indicators that all was not well with Wall Street or Main Street. (But why, one is compelled to ask, is it that these charts only ever come to light after the crash has happened?) However, it is worth remembering that Sequoia is heavily invested into companies that rely on advertising spending or consumer interest in order to grow, and in some cases may not yet have a way of turning interesting into income. Both those areas will be hit hard. You have only to look at Apple's stock price over the past few days to see that play out; AAPL is trading at half what it was 8 weeks ago.

Clearly, firms tied to selling into the financial markets are going to get hit hard too, but there the picture is far less uniform: Oracle says "no real issue" where as SAP say "this is hurting us already". IBM, meanwhile, just got their results out into the public's gaze early, larded through with a message that might be summarised as "don't panic"; IBM further reaffirmed its existing full year profits guidance, for example.

The markets are absolutely consumed with the effects of the credit crisis. Notions of an overall business slowdown are secondary, and taking a step back even a slowing worldwide economy in no way justifies the falls we've seen hitting every stock market around the globe day-after-day.

We're now beginning to look at what this means for our business. Thankfully, we have relatively little exposure to any of the sectors seeing the most immediate impact, but when the world is crashing round your ears then, even if it's not your building that's disintegrating, wearing some sort of hard-hat and keeping a weather eye open is the least you can do. However, this is no time for panic, and letting things play out for a couple of weeks and getting the election over & done with should clear out a lot of the smoke and dust, allowing a much clearer picture of what's really happening to appear.

Meanwhile, there are deals to be done, customers to meet with and value to be added. In short, business as usual, keep your head down and in the game, and don't get distracted from the basics.

Rumours of the death of capitalism are greatly exaggerated. Indeed, for those with strong nerves and a ready supply of cash (Soros and Buffett anyone?) will make out like bandits from what is now a golden buying opportunity.

No comments: