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Evaluating Tech Startups: The Risks And Rewards


Unwilling to take a chance on an emerging technology vendor? Your company could miss out on the next big breakthrough.



Tech startups are enthusiastic about the prospect of selling to businesses, and rightly so. Opsware, VMware, Salesforce.com--they're just a few recent examples of startups that hit it huge, whether through buyout, IPO, or organic growth. Venture capital firms are pouring money into promising early-stage tech companies--$1.1 billion went toward 187 software deals in the third quarter, according to PricewaterhouseCoopers and the National Venture Capital Association--and Web 2.0 has everyone thinking again about all the business possibilities on the Internet. The pieces are in place.

Except for one. IT organizations, the ones with the purse strings, treat startup vendors like they're radioactive. Blame it on tight IT budgets, a preference for doing business with fewer vendors, and a once-burned, forever-cautious attitude after Web 1.0. The tech industry's innovation engine is revving, but CIOs have a foot on the brake.

"After a while, you don't take risks anymore," the CIO of a Fortune 500 manufacturing company said in a meeting of peers a few months ago. "Your world is so complicated, you can't take those risks." InformationWeek Research bears out that thinking. In our survey of 150 senior business technology executives earlier this year, 74% described their companies' IT cultures as being moderate or conservative; only 26% called themselves aggressive.

Entrepreneur Marc Andreessen says the number of business technology early adopters has "dropped dramatically" over the past few years. Andreessen characterizes most IT departments as being "stuck in the mud" and laments they "actively look for excuses not to act."

That's a harsh assessment from someone who has struck pay dirt with two tech startups: Opsware, which Hewlett-Packard is in the process of acquiring for $1.6 billion, and Netscape, whose 1995 IPO was one of the biggest in corporate history and which sold to AOL for $4.2 billion in 1999. Andreessen is now on his third startup, social networking site Ning.com. So does Andreessen see IT organizations warming to startups? Hardly. Entrepreneurs who go knocking at the data center, he says, are met with "deadbolts, chains, shackles, boiling oil, pits full of sharpened steel spikes, iron maidens."

Ning offers service options for businesses, but Andreessen isn't going after the IT crowd this time around. "If businesses want to use it, that's great," he says. "If not, there are 1.3-plus billion consumers on the Internet who will."


Page 2:  Reasons To Be Cautious--Or Not
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