Today, Techcrunch announced their Techrunch 2008 Year in Review, a seemingly massive report on 2008 web technology with data from their highly successful brand extension, Crunchbase, a wikipedia for tech companies. In the executive summary posted on Techcrunch, they posted three charts that all point towards the downward trend in startups founded, venture capital raised, and M&A activity.
The one chart that really stood out in my mind is the number of startups founded. From the chart, you can see that in January 2008, there were 170 new companies founded, and in December of 2008, the number was all the way down to approximately 20. From August, it appears that the decline in new companies founded escalated. In August, there were 100 new companies founded, and in an almost straight-line fashion, every month brought about 20 fewer startups that were founded.
All in all, this is why it’s a great time to start a web company if you can weather the storm. As I said in my previous post,
- When money is tight, it forces you to establish a solid business model
- Would be competitors, especially those who need a great salary, benefits, and stability are going to take a wait-and-see approach, probably not leaving their corporate jobs
- Your potential competitors aren’t getting funded, especially copycat ideas
- The pace of development and innovation is slowed, enabling you to incrementally iterate, without worrying that too much money is flowing into your space, possibly crushing you or diluting your impact on the space
- Real estate prices will go down, as well as labor input costs
- Only those truly passionate about what they are doing and the value they are creating are going to stay in the game. Others, who may only be monetairly motivated, will drop out and do something “safer”
Right now it’s the beginning of the gut check of those that wanted to be or are entrepreneurs. It would be interesting to see how 2008 compared to 2007 with number of new companies founded, and it will be interesting to watch in 2009, as the US system continues to take body blows.
Mark Cuban said it best in his blog post,
“The nature of our country’s business infrastructure is that it is destined to be boom and bust. Booms are when the smart people sell. Busts are when rich people started on their path to wealth.”
The one aspect to see moving forward is the number of companies that consider themselves strictly iPhone and Blackberry application companies, rather than traditional web-based companies, since presumably, it would take less cash to start generating revenue since you have the ulitmate distribution platform. Maybe innovation could improve since platforms such as the iPhone enable developers to care less about the infrastructure and scaling, and moreso on the value add. If I were a betting man, I’d say that Internet innovation has come to a screeching halt, not to be picked back up until 2011.