1. “Exits” through acquisition by an established industry player or private equity buyout will be less likely

2. Consumer dollars may shift away from startup businesses whose products look a lot more like “luxuries” than day-to-day essentials

3. Top qualified job candidates and new entrepreneurs may delay their entry into the market until conditions improve

Read More: http://www.thestrategyfox.com/2007/08/putting_it_together/

I don’t think things are bad, I just think the market is self correcting. I agree that more money will be directed to VC funds, but this is a riskey market as well. VC markets will boom for a few years, it will crash, and then we’ll start the process all over again with debt markets.

No doubt investors and entrepreneurs in technology startups are as guilty (or opportunistic) as in any other sector of having ‘made hay while the sun shone’. The shakeout will provide a good dose of back to basics financial discipline. Such discipline has never been a disincentive to quality management teams – which is what sound businesses are all about.

The word here in new York is “be very scared.” Early in the week, I guessed three to one we’d pull through. But even a one in four chance of an imminent crash is very, very high. The money side – LBO’s, private equity, ultimately the payoffs for VC’s – is pulling back hard. Everything there is based upon massive, risky borrowing that explodes if interest rates go up or a problem hits.

Informing that opinion is a blog from Alan Meckler, who's been through several ups and downs: "Lots Of Deals

Internet deals abound. … we have been offered an amazing number of Internet properties. … I think the mortgage mess might be part of the equation. My reasoning is that many entrepreneurs might be panicking. Perhaps they reason that all types of funding might be curtailed due to the credit crunch enveloping America? So perhaps this is the time to sell rather than hunt around for more funding for expansion? … It reminds somewhat of late 1999 to early 2000 when acquisition options and VC deals were aplenty.”

Buying when everyone else is panicking has historically been a workable strategy, but it’s also possible the panic has lots more room to escalate.

Another way to look at the problem is that crisis in the money sphere produces crisis in the real economy. That was explored in the nineteenth century, as the spread of crisis from the realm or circulation to the realm of production. The Fed and government have only limited tools in this time of great deficit.

I’ve no certainty about how this will play out. In 1998, I predicted we were in a bubble that had to burst. For two years after that, things kept going up and anyone who followed my advice wouldn’t have made money. Anyone honest has learned to be hmuble about any of these predictions. db