Monday, March 23, 2009

Mark Twain on burn rates

It's been nearly 6 months since the venture community began advising portfolio companies to pull in their horns and cut burn rates. As the general economy continues its tailspin, and the oversupply of technology companies in many areas persists, I suspect we are now entering a Darwinian period, where the number of active venture backed portfolio companies shrinks and will be notable for more than a few quarters of private to private mergers.

Many companies are finding the path to self-sufficiency is just too far off; while expansion funding is primarily going to select firms with demonstrated hyper momentum. Though difficult to pull off, these private to private mergers are the best way to salvage value, while triaging a portfolio when most potential buyers are on a Corporate Development hiatus. A good example of this trend is the SmartReply acquisition of mSnap reported today.

Today's environment brought to mind Mark Twain. Despite his many accomplishments as a pundit and as an author, his achievements didn't extend to the business realm, where poor financial management and unwise speculation led to a nasty brush with bankruptcy. I seem to recall (but can't find) his quote noting that the path to bankruptcy begins with a slow walk and ends at a dead run.

These words ring so true in the technology business where innovation is encouraged, yet, when you are on the wrong path, there is much reluctance to move quickly towards allocating resources away from failing initiates and to promising areas/products. Stemming the misallocation of resources, as a matter of ongoing management, rather than a reaction to an active board, or a market shock is an essential prerequisite for stayin alive in such turbulent times.

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