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Good News, Startups: You're Not Screwed

seedlings.jpgWhat does the market and economic meltdown mean for startups? Jason Calacanis thinks it means Armageddon. Fred Wilson thinks it means Armageddon if you don't have strong VCs in your camp.  I don't think it means much of anything.

Hopefully you are building your business in a way that is independent of the stock market.  (If you're not, you are screwed).

Will there be less money available for startups? I have met with 5 firms in the past 2 weeks, and I am not sensing any change in attitude from experienced Series A investors. If you have a 10 person internet company looking for VC money and an investor says he is nervous about the markets, than he is either blowing you off or doesn't know what he is doing. Your company won't hit its stride or profits until 2010 at the earliest - NO-ONE has any idea what 2010 will look like but the odds are we will emerge from any 2008-09 problems by then.

VC as an asset class has not gotten any less attractive to pension funds and other huge investors in the past month - in many ways it has gotten better since many other classes of assets simply relied on leverage to get outsized returns. So your VC should not be starved for cash.

The only two things I will be doing differently are:

1) being a little more conservative in raising money - ie taking more dilution and raising more money than I would have earlier this year, and

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2) being more aggressive is getting great people. Startups are all about people and we now face less competition for hiring than we did 6 months ago. Who really wants to spend their life fighting to grow a traditional business by 1% a year when you can build something from scratch? The internet is growing faster than any traditional media and more information is flowing online.

The upcoming recession will be fundamentally different than the Internet recession of 2001-02 because valuations today are an order of magnitude lower, and the cost structure of most startups is easily 1/3 lower than what it was 8 years ago.

So, don't panic - if your business made sense three months ago, it still does today.

Kevin Ryan is the chairman of Silicon Alley Media, our parent company. He was the CEO of Doubleclick and has since co-founded five New York-based startups, including Panther Express and Gilt Groupe.

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See Also: Fred Wilson on the Startup Depression

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