You have to be crazy to start up a high tech company these days.  Everything is against you.  Customers aren't buying anything.  And if they were they wouldn't trust buying from a start-up that may go into the high tech history book at any time.  There is no IPO market.  Acquisitions are fire sales, not business mergers.  To raise money, if you can at all, you have to give up 98% of your company for $1.90, sign over all your internal organs to venture capitalists, and agree that they will own a majority share of all future businesses you start, including making you sign the Reincarnation Clause which gives them 20% ownership of any businesses you start if you die and are re-born an entrepreneur (a new definition of hell?). 

It's madness.

You'd also have to be crazy to invest in early stage high tech companies.  As soon as the company uses up the $1.90 you provided, they are going to need another five or ten bucks.  And the later stage investors who provide the money are going to want you to pay off all liabilities the company has built up so far, accept a 1:1000 reduction in your percent ownership in the company, and personally staff their reception desk at nights, on weekends, and when their admin goes on maternity leave.   If the company needs more than five or ten more dollars, then the cycle just continues.  Everybody loses his shirt except for the entity putting the last money in.  They only lose their amateur status. 

It's madness.  I can't figure out for the life of me why or how any high tech companies get off the ground in these times. 

Yet, they do.  There is still stuff going on.  People are still proposing business plans for new companies.  Some are getting funded.  It's crazy.  Why is this still going on?

One explanation is that some consider this to be the best time to invest - when things are at their worst.  The investors and entrepreneurs with this outlook aren't afflicted by most people's tendency to project the future based on today and yesterday, which leads to a lot of bad financial management decisions - money flowing into the stock market when it is an all-time high and flowing out of the stock market when at a low.  Lot's of money can be made by those who buck these trends and buy low and sell high.  But that takes a level of guts and patience that few have. 

Another reason - and I think this represents a bigger component of the overall explanation - is that some people are just driven to create and build.  Good times, bad times, it doesn't matter.  This is what they do.  In an era like this true entrepreneurs and early stage investors aren't getting punished, they are getting identified.   We no longer have the noise of people starting companies because they want to get rich quick or because it's in vogue.  The people trying to build something today are doing it because they have a genetic pre-disposition to do so.  To these people, the overall economy is just another challenge and problem to solve; just like having 22 competitors was back when business plans written on napkins were getting funded. 

Whether it's madness or calculated wisdom or some combination, I have a huge amount of respect for the people trying to start companies today. Not all ideas floating around are worthy of investment, but I respect the attempt.  To survive, the high tech world needs a continual flow of new and innovative ideas, challenges to existing ways of thinking and market dynamics, and threats to market segment gorillas - even if most of them ultimately fail. 

But I don't believe the entrepreneurs and early stage investors active today are just playing a suckers game for the good of the rest of us.  I believe that many of these people will ultimately be rewarded – and the reward may be huge.  

It's very difficult to time markets and business cycles.  And it's almost impossible to jump into the game from the sidelines when cycles start to turn.  The only way you can be sure to catch an upturn is to be in the game during the downturn.  Steady wins the game.  The VCs doing deals today seem to be the same ones that didn't rush to do hundreds of deals a few years ago. That's not a coincidence.   

High tech companies created today will bring their products to the market in a year or two.  Times may be completely different then.  Enterprises may need to replenish or overhaul their IT infrastructure to replace aging systems neglected over the previous two or three years.  The cumulative effect of the continual deployment of broadband to more and more businesses and homes, combined with new high-use applications may radically change traffic patterns and turn a bandwidth glut into a scarcity, resulting in Service Providers rushing to install new systems.  In all cases, there will be a desire to use the brightest, shiniest new boxes, built from the latest and hottest semiconductors.  But existing vendors may not be able to provide such capability due to the long-term effect of reduced R&D expenditures.  This may put start-ups in the catbird seat – filling the void.  Revenues may ramp, IPOs may result, and M&A frenzy may spin up.

Of course, companies launched today may also bring their product to market before this happens and die a slow and tortuous death.  But if they aren't the ones that benefit from the next virtuous cycle, it will be the ones launched six months later, or perhaps the ones launched six months after that.  Who knows?  The best you can do is identify a niche, fill it in an innovative manner, and then control costs to survive, survive, survive until good things happen.  If you wait until you can see the light at the end of the tunnel to get started, it's probably too late.

So maybe there is a method to the madness of entrepreneurs and VCs starting new companies today.   Or perhaps they are just genetically programmed and it has nothing to do with the state or quality of their mind.   Whatever their motivation, I will drink a toast to them tonight.