Calm amid the stormFinancial crisis offers opportunities for start-ups

These are tough days for entrepreneurs seeking new cash — also for venture capital firms which may be forced to conduct triage on existing portfolios. Bloomberg reports that U.S. venture capital investments fell 61 percent to $3 billion in the first quarter of 2009, the lowest level in twelve years, as the financial crisis chased away funding for technology and clean-energy deals. Funding of clean technology — coming off a surge of investments in 2007 and 2008 — plunged 87 percent, according to the National Venture Capital Association. Total venture investments dropped 47 percent from the previous three months.

The freeze in initial public offerings kept startups from getting funding because investors were not sure how they would earn a return, said John Taylor, vice president of research at the Arlington, Virginia-based association. Venture capitalists are devoting more attention to companies they already own. The average size of a venture-capital investment fell to $5.5 million from $7.8 million a year ago, the NVCA said. Most of the investments are going to later-stage companies.

These gloomy figures have led business magazines to run articles with scary headlines — a recent example would be BusinessWeek’s John Tozzi, who titled his article in the 20 April issue, “Venture Capital Funding Disappearing — Will It Come Back?”

Still, counterintuitive as it may sound, now may be just the moment to turn a great idea into a lasting enterprise. Technology Review’s editor in chief and publisher Jason Pontin reports that this, at least, was the take of venture capitalists and entrepreneurs who gathered in Silicon Valley earlier this year to talk about why recessions are the best times to launch companies and topple old orders.

Steve Jurvetson, managing director of the venture capital firm Draper Fisher Jurvetson, and Dave Goldberg, former manager of Yahoo Music and entrepreneur-in-residence at Benchmark Capital, explained that while a world of failing corporate titans and changing government policy is chaotic, chaos creates opportunity and leaner times bring focus. Jurvetson and Goldberg were joined by three entrepreneurs who described their travails and coping strategies in their recently launched ventures.

These entrepreneurs are Krishna Subramanian, cofounder of Mobclix, which helps iPhone developers monitor and profit from their apps; Leah Culver, who founded the now-defunct microblogging site Pownce (she is now developing social technologies at the blogging site Six Apart); and Sol Lipman, cofounder of 12seconds, which he hopes will do for short videos what Twitter did for text.

Pontin moderated the discussion at a February gathering in Mountain View, California, which was sponsored by the Churchill Club, a Silicon Valley business and technology forum. Technology Review offers an edited and condensed excerpts from the event.