DANA POINT, California -– Nobody talked about their "cash burn," their plans for "grabbing mindshare" or their "exit strategy" at this year's Red Herring NDA conference.
A chastened gathering of venture capitalists, investors and entrepreneurs at the plush St. Regis seaside resort focused on more old-fashioned concepts like making money, holding on to customers and, in some cases, staying alive.
"It's been a brutal year," said Peter Finkelstein, vice president of business development for Orinda, California, startup Critical Point Software. "It took until September to close our last $3 million. Our survival instincts were definitely tested."
The fact that all of the several hundred attendees have survived the economic downturn and its acceleration after Sept. 11 created a sense of camaraderie among executives used to battling each other for clients or funding. Even the sessions for entrepreneurs seeking cash or partners seemed somewhat kinder and gentler this year: "It's tough: five minutes and then you're off," said the moderator, as he booted a CEO who had overrun his time.
The Red Herring conference, which seeks to chart technology trends, spent a lot of its time looking backwards at mistakes made.
Paul Deninger, chairman of mergers and acquisition specialist Broadview Holdings, faulted investors and venture capitalists for being so concerned with "first mover advantage" that they backed unsound companies and product rollouts. "A bad decision made in three days is still a bad decision," he said.
Such decisions were spurred in part by the "unbelievable availability of capital," which encouraged people to put market share ahead of cash flow, he said.
Venture capitalist Tim Draper, who made a fortune selling Hotmail to Microsoft when it had millions of users but little cash flow, made no apologies for the "market share first" mentality -– noting that it was "rational" during a time when money was essentially free.
That time is gone; but Draper still insisted that he "can't think of a better time to be an investor." Entrepreneurs, who in recent years would have been dissatisfied if he invested $5 million, are now grateful for $2 million, he said.
"I don't have to put out as much money for a percentage of a company," he said.
Entrepreneurs who can survive the tough times are also facing an "open field" as their competitors die out, Draper said.
Attendees generally agreed that the terrorist attack on Sept. 11 had a temporary chilling effect on technology deal making, but little long-term impact beyond intensifying a recession that was already upon the industry.
For weeks after the attack, technology executives and investors were "like deer caught in the headlights," said Rahul Bandhari, founding general partner of venture capital firm Paras Ventures of McLean, Virginia. "The best and the brightest are no longer frozen."
Investors at the conference didn't seem frozen, but they were focusing on biotech, security software and media streaming -– not dot-coms.
"There's a lot of shuffling going on in the investment banking realms," said Christopher Clement, CEO of Epicyte, a biotech company that specializes in using plants to grow human monoclonal antibodies. "A lot of them chased the dot-com dream. Now a lot of them are coming back to biotech."
His case is a good illustration: The company has raised $23 million in two funding rounds so far, and hopes to raise $50 million to $60 million more.
