VCs to Entrepreneurs: Outlook for Software Startups Is As Good—or Bad—As Ever

When the moderator for a panel discussion about the venture outlook for 2009 begins by saying, “Everyone knows it’s really bleak right now,” it’s a safe bet you’re not at a chapter meeting for Optimist International.

But a venture overview yesterday organized by the San Diego Software Industry Council seemed to run against the current of totally gloomy expectations, with three California venture capital partners saying, in effect, “it’s bad, but it’s not that bad.” As a result, a kind of irony permeated their discussion, with the VCs telling entrepreneurs in the audience that their odds of getting funded were never very good in the first place.

“My own personal assessment is that nothing has changed,” said William Quigley, a blunt-talking managing director at Clearstone Venture Partners, which has offices in Menlo Park and Santa Monica, CA. “I want to invest in very few startups.”

Prashant Shah of San Francisco’s Hummer Winblad Venture Partners agreed, saying his firm reviews proposals from about 2,000 startups a year— and only about 200 are appealing enough to warrant meetings. Shah added that the number of venture deals has been pared even more. “In 2008, we did five investments, so that’s about 2.5 percent,” he said.

Quigley rejoined, “Most of what we see are not good ideas. They’re crappy ideas. Some people don’t realize that you’re not going to raise capital when the total market you’re looking at (for your startup) is $5 million. And you’re not going to get funded when you need to raise $300 million to get to break-even.”

In this respect, Quigley and Shah maintained that hard times … Next Page »

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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