Prashant Shah, managing director at Hummer Windblad Ventures
Souring tech economy, layoffs, startups closing…Deja vu, circa 2001?
Well, not exactly, according to Prashant Shah, the managing director at venture capital firm, Hummer Windblad Ventures speaking yesterday at the Cloud Summit Executive conference in Mountain View, Calif.
“It’s not as bad for Silicon Valley as 2001 in a sense that we’re not ground zero for what’s happening. That’s a fundamental difference. So what that really means, is that a lot of the advices that venture firms are giving to their portfolio companies is more predicated on the basis that the effects that what’s happening now in Wall Street will reach out here in many different ways. But we expect to reach out at some point”, said Shah.
So what is Hummer Winblad saying to its portfolio companies?
- Trim back or at least start tightening the fat;
- Watch your cash or raise if you can;
- Layoff “B” players and hire “A” players on the cheap. “If you have B players on your team that you look at getting rid off, this is a perfect excuse to start getting rid of those folks. If there are A players that you are looking to hire, go back and put down an offer that is not necessary what they were asking and you’ll probably get those people to join the company”.
And like in so many VCs, Shah – who’s firm focus on software investments – sang the classic refrain “this is a great time to start a new company” pointing to cheap ressources (people/talent, IT services and equipments, rents…).
“And as our peers, we are very active looking and funding companies. This is a long term game. And will see the results of it 6 years from now… We focus on early stage (first institutional round) software companies typically deploying $3-5 million. A good software company can achieve very high level of growth margins: 95% plus for traditional licence software and at least 75-80% if you’re hosted. Getting 20-25% to the bottom line as well. We think that as a software company you should be fully capitalise at $15-20 million until the break-even point. So that’s very capital efficient”, added Shah.
Finally if you’re actually looking at creating a start-up, the main criteria Hummer Winblad looks in a new idea is: the MARKET. And that’s before the people or the technology.
“Most investors will look across 3 different aspects of an opportunity: the team, the technology and the market the companies are in. And for us, the most important thing is the market… A good market will be the dominant factor of success. A bad market will over win over a good team and a good technology”.
