Tech firms need to cut back spending

October 10, 2008 9:15:25 PM PDT
Technology stocks haven't been hit quite as hard as some other sectors of the market, but now tech firms are now beginning to get squeezed, by their biggest investors.

Sequoia Capital's PowerPoint presentation is now on the web. It opened with a visual statement: the good times are gone. 55 slides followed with some attempts at humor but mostly a doomsday message for startups needing time and money. You won't get it.

Steve Westly runs his own venture capital firm. He's also California's former controller and a gubernatorial candidate. His view is not as dire as Sequoia's, but agrees start ups need to be lean.

"You need to be incredibly disciplined in your spending, if you're not at profitability yet, get to break even, you need to run a tight ship," says Westly.

Business consultants say the economy and tight credit market mean we'll be seeing firms of all sizes cut costs.

"When you're in an uncertain environment like this, you'll expect a certain level of pulling back and probably an overreaction," says Kimball Norup, a business consultant.

The slideshow indicates partners at Sequoia Capital told their portfolio companies that only the quickest will survive and that everyone should be ready to hunker down for the long haul warning the downturn could last 15 years. Not everyone in Silicon Valley is buying that prediction.

"I don't know how you could say 15 years. They couldn't call it six months ago that this was going to happen, so I don't know how they can call the recovery. I actually think you're going to see some buying pretty soon. I think we're hitting bottom," says Bill Watkins, the CEO of Seagate Technology.

Watkins of Seagate Technology says his company will be diligent with costs but also on the lookout for acquisition opportunities. For solid companies, the money is out there-almost in hiding.

"Businesses in Silicon Valley still have capital available to them. Bank of America just did a raise of $10 billion. Our capital position is strong," says Kevin Gillis, from Bank of America's Business Division.

It seems everyone agrees cash is king and the costs of borrowing are going up, at a time when just about every other arrow is red and going down.


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