Quips and Tips: Panel Searches for Signs of Recovery

10/22/09Follow @bvbigelow

A breakfast discussion on “Getting Ready for the Rebound” held yesterday by the San Diego Venture Group might have been more aptly billed as “Waiting for the Rebound: A Tragicomedy in Two Acts.” But then again, with San Diego News Network CEO Neil Senturia serving as moderator, there really can only be one act.

The irrepressible Senturia was in his element (which is to say he was on stage) as he delivered one-liners while leading a panel of local experts through a conversation about the rebound that ranged from the venture capital outlook in San Diego to Wall Street ethics and the overall U.S. economy.

So, for example, as UC San Diego Economist Allan Timmermann talked about government spending and the prospects of inflation, Senturia interjected, “Inflation is what allows you to live in a more expensive neighborhood without moving.” And when Mission Ventures managing partner Leo Spiegel talked about the strength of character he looks for in startup entrepreneurs, saying, “I want to see that they went to the wall,” Senturia quipped, “You mean the wailing wall.”

As the only economist on the panel, Timmermann was an obvious target for such Senturian gibes as, “If you put 10 economists in a room, you get 11 opinions.” But a riposte from the UCSD economist got one of the biggest laughs when Senturia indignantly denounced the outrageous pay and bonus demands of disgraced Wall Street executives, the corruption of Bernie Madoff, the alleged corruption of hedge fund manager Raj Rajaratnam—and demanded the panelists explain what has happened to American ethics. Timmermann answered, “It’s only when the tide retreats that you see who’s swimming naked.” The audience roared.

But seriously folks, the conversation about preparing for a rebound led to a number of interesting points and observations:

—The outlook for venture-backed companies is clearly improving, according to Mission Ventures’ Spiegel. Following what he describes as a “brutal” period last winter, in which a third of the employees were laid off across Mission Ventures’ 30 portfolio companies, Spiegel says two of those ventures are now responding to buyout offers and a third is considering an IPO. He adds, “Through this entire calamity, we’ve only lost one company.” (He did not identify the company, however.) Spiegel says Mission Ventures’ partners also have meeting with institutional investors with the intent of raising money for another venture fund. “We’d like to see more innovation in San Diego,” he says.

—One sign that the economy is recovering can be seen when credit and capital begin flowing again to small business, according to Timmermann. The UCSD economist says a good source for such data is the Fed Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices. “We saw a sharp drop in bank lending from May to July,” Timmermann says. He explains that’s a bad sign because 52 percent of the U.S. workforce is employed in small businesses. Another sign of economic recovery, Timmermann says, will be increased investment by corporations in research and development.

—Raising capital is still extremely difficult—especially for small business. Cash is king, so the companies that had cash before the crash are in the best position, and bootstrapping is becoming much more of a necessity, according to Rick Valencia, the founder and chairman of San Diego-based Profitline. Valencia says he bootstrapped Profitline, which develops software that helps enterprise customers track their spending, for a decade before turning to venture capital. On the other hand, Valencia says, Profitline can hire a talented engineer these days for $100,000 or less. “A few years ago, we had to pay $120,000-plus for a good engineer. So that’s a good thing for the company, but maybe not such a good thing for the individual who has to carry all that debt.”

—Debt continues to weigh down the economy—and any recovery. “What is worrying me about the medium- to long-term horizon is that consumers are still in debt,” Timmermann says. Until recently, consumer spending accounted for about 17 percent of U.S. economic activity. Timmermann says debt levels are now such that consumers are spending less and saving more.

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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