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5/7/2009
04:05 PM
Michael Singer
Michael Singer
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Can Startups Survive Recession Without VC Money?

Little known fact: Apple and Microsoft were both started without venture capital and both started in a recession. So what's your fledgling company need to do to navigate the current economic climate?

Little known fact: Apple and Microsoft were both started without venture capital and both started in a recession. So what's your fledgling company need to do to navigate the current economic climate?


I got a pitch the other day from some fine fellows over at BDO Seidman, an accounting and consulting firm that participated in 73 public and private offerings, producing proceeds in excess of $10 billion over the past two years. Partners Bob Strasser and Bob Pearlman have a suggestion for startups: You can be wildly successful without VC investments in a down market.

"The top priority for companies in the technology sector should be having enough cash on hand to survive the year" Strasser said in an e-mail. "This means that innovation, historically a defining characteristic of technology companies, for once, is a secondary concern."

To further help reduce costs, procure (available) capital and increase market share, Bob and Bob also suggest cultivating funding options. Responsible management must consider the likelihood of a further contraction in credit availability and look to secure alternative means of financing. The firm suggests regular open, honest and direct communication with lenders. Also, management may want to develop relationships with private equity funds and other non-traditional capital providers besides venture capitalists.

Once those two factors are in place, BDO Seidman tells its partners to manage their inventories. Buying lots of stuff to sell or build your product means needing lots of cash or credit. Since both are hard to come by, it is important to review inventory levels regularly and to implement procedures to convert old and slow-moving inventory items to cash on a regular basis.

And despite the need to focus on your product, marketing at the early stages is critical, Bob and Bob said.

"In addition to monitoring impacts on capital and costs, companies in today's economy should be focused on redefining and reinforcing their core markets and introducing new and innovative ways to attract and retain their customers."

Does this mean investing all of your time and energy in self-promotion on Twitter and Facebook? Not really. But InformationWeek has profiled 50 of the most innovative startup technology companies. And you can always steal good ideas from any of them. Download the report here (registration required).

Now, onto the latest list of companies that are getting VC money. Here's hoping they all turn into the next Apple or Microsoft.

Marin Software, a San Francisco-based developer of paid search management software for advertisers and agencies, said it has raised $13 million in its third round of funding, led by DAG Ventures. New investor Focus Ventures, as well as previous investors Benchmark Capital and Amicus Capital also participated in the round, which increases the company's total backing to $25 million.

FreeWheel, which makes software designed to help content owners and publishers manage video advertisements even when they're buried in syndication relationships, said on Thursday that it has landed $12 million in its third round of funding, led by Foundation Capital. Previous backer Battery Ventures also participated.

For the gamers in the bunch, Booyah, said this week that it has raised $4.5 million in its first round of funding from Kleiner Perkins Caufield & Byers (KPCB). Founders Keith Lee, Brian Morrisroe and Sam Christiansen have previous experience with Blizzard Entertainment, Activision, and Insomniac Games. The trio is working on an unspecified "entertainment product," to be revealed later this spring.

Quantenna Communications, which develops semiconductors for high-speed, multimedia wireless networking, said on Wednesday that it has raised $13.85 million in its third round of funding. Southern Cross Venture Partners led the funding. Previous investors Grazia Equity, Sequoia Capital, Sigma Partners and Venrock Associates also participated in the round

And finally, DealBase.com said it has raised $1 million from angel investors. The company recently launched a hotel deals Web site of which it plans to use to expand its online service. Notable individual participants in the round included Russ Siegelman, an affiliated partner at Kleiner Perkins Caufield & Byers; Bob Zipp, managing director of Amicus Capital; and Josh Hannah, general partner at Matrix Partners and former CEO of eHow.com.

Is your company getting venture funding? Is your VC one of the first to grab a rising star? Drop me a line and let me know.

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