The Download: Navigating the Downturn

Washington's technology community is about to get another test.

It's only been a few years since the dot-com crash wiped out many of the area's high-flying telecom firms and Internet start-ups. And with the economy now facing another dramatic downturn, entrepreneurs and investors are once again bracing for tough times.

"It's back to basics," said Raul Fernandez, a local business guru whose current investments range from a mobile advertising start-up to the Washington Capitals. "The days of wide-eyed growth pitches are gone for a while. Now all that matters is, do you have a product, are people buying it, and are you making money?"

In Silicon Valley, a number of large companies such as Google, Yahoo and HP Hewlett-Packard anchor and guide the technology community through lean times. But with two of Washington's bellweather companies, AOL and Sprint Nextel, gone, local tech workers are looking to those who that have track records of doing more with less.

"The best people to fuel innovation are the people who've done it before," said Hooman Radfar, chief executive of McLean-based widget-maker Clearspring. He said he has noticed people networking more to find partners and idea soundboards.

We've rounded up eight people who have a few ideas of how to help guide the region's Web 2.0 community through the financial slump. Those pictured here are a sampling of the investors and mentors who are helping young companies navigate the crisis. You'll also find the young chief executives who are figuring out how to manage their bottom lines, as well as those who're are holding them all together.

The Networkers

Robert Neelbauer runs Washington-area jobs listing site jobmatchbox.com and management consulting firm Staffmagnet, and he hosts Social Matchbox, a quarterly tech jobs recruiting event.
Peter Corbett is chief executive of interactive marketing and consulting firm iStrategyLabs and co-hosts Twin Tech parties, designed to promote discussion between the government contracting set and a newer crop of Internet-focused entreprenuers.

These guys are sometimes called the glue of Washington's tech community. In addition to running their own District-based companies, Robert Neelbauer and Peter Corbett organize the events that give disparate groups of developers, engineers, executives and investors an excuse to get together.

The most recent Social Matchbox, held last week, was more of a demo night than a recruiting speed-dating round, "because fewer people are hiring these days," said Neelbauer, a former Capitol Hill staffer. He said he has prepared for a slowdown at his own firm, Staffmagnet, by cutting costs and consulting on a wider range of projects as fewer companies are looking for employees.

Corbett, a former concert producer, fashion-show videographer and advertising media planner, has picked up a few tricks for throwing a party. The last Twin Tech get-together attracted 1,050 people, and his current challenge is finding a venue big enough for the next one.

"There are so many smart people sitting in the basement of the DoD [Defense Department] or an association, and in order for the community to grow we need to meet more of these people," he said.

Last month he worked with the District government to put together a contest, called Apps for Democracy, for software developers to design mobile and Web applications that would allow citizens to access government data. Getting citizens involved with government projects saves local resources and generates business for start-ups, Corbett said.

The Advisers

Raul Fernandez is chairman of ObjectVideo; board member of Web-hosting firm Network Solutions; investor in and adviser to mobile ad company Mobile Posse, equity firm General Atlantic and tech incubator LaunchBox Digital; and part owner of the Washington Capitals, Wizards and Mystics.
Ted Leonsis is chairman of online payment service Revolution Money; board member of widget-maker Clearspring; majority owner of Snag Films; investor in and adviser to GridPoint; and majority owner of the Capitals and Mystics.

The longtime friends and business partners are familiar with what it takes to survive a serious slowdown.

"2009 is going to be just as bad, if not worse, than the quarter we've just seen," Raul Fernandez said, noting the super-tight credit conditions, big drops in consumer spending and spiraling stock market. "No one knows where the bottom is."

He started his first company, Proxicom, in 1991 in the midst of a downturn, and said he was able to stay afloat by keeping his expenses low and getting paying customers almost immediately. He's now imparting his lessons learned to the next generation of entreprenuers.

"It's all about surviving the next 12 to 18 months," he said. "Ideas that aren't fully baked will not get funded."

While Fernandez stresses the importance of conserving cash, Leonsis emphasizes the opportunities hidden in the slump.

"It's important to focus not just on cutbacks, but what the company feels like after you survive," Leonsis said. "It's been a healthy exercise for all our young CEOs to ask, 'What must we do and what's frivolous?' "

Both Fernandez and Leonsis agree that companies working to help people save money and energy could have big potential.

"Anything that helps people and companies be more efficient is going to get attention, because we're all trying to do more with less," Fernandez said.

For example, Fernandez is an investor in Algentis, a San Francisco company that handles human resource needs for small businesses that can't afford their own full-time staff.

Leonsis and Fernandez said that to their surprise, fans are still attending hockey games. "If people are going to spend the money, they want to watch something they enjoy," Fernandez said.

The Funders

Phil Bronner is a partner in Novak Biddle Venture Partners and an investor in and board member of Clearspring, Webs.com (formerly Freewebs), Social Gaming Network, InGrid Home Security, Netcordia, Approva, Vision Chain and Clear Standards.
Don Rainey is a partner in Grotech Ventures and an investor in and board member of Arpu, Clarabridge, LivingSocial and Zenoss.

Many people look to the smart-money investors for direction. These venture capitalists say they're staying their course, with money in e-commerce and social media.

"The greatest harm is being slow to react," Rainey said. "It may bring opportunity or it may bring negative impact. It's best to be alert, talk to customers as much as you can to find out how people are viewing the situation."

Bronner sees the downturn as a way to "clear the clutter" of the Web 2.0 companies that have proliferated over the past couple of years. "At the end of the day, the strongest companies are going to emerge winners."

Rainey said today's local tech community is full of alumni from heavyweights like AOL, Sprint Nextel and MicroStrategy - a resource the region did not have the last time the tech sector took a hit eight years ago.

"Every generation of high-tech start-ups begets other generations," he said. "A successful start-up is going to convince three or four other people they can do it. Even if it's not the best of economic times, we're doing well in terms of our entrepreneurial class."
Bronner agrees. "Back then we didn't have mentors who had done it before," he said. "We have that now in every sector."

He's taking bets on businesses that promote efficiency. Today, he plans to announce participating in a $4 million investment in a Sterling software firm called Clear Standards, which helps companies affordably reduce their carbon footprint.

"The maxim is that great companies are created in downtimes," Rainey said. "You do get rewarded if you can grow when it's not easy to grow."

The Chief Executives

Haroon Mokhtarzada is chief executive of Webs.com, formerly Freewebs.
Hooman Radfar is chief executive of Clearspring.

Clearspring and Webs.com have become known as the staples of the local Web 2.0 start-up community.

This is the first economic downturn Mokhtarzada and Radfar, both 28, have experienced in the business world.

"I never had a job before this," said Radfar, who founded the widget syndication firm two years ago as a Carnegie Mellon University grad student.

The company is not yet profitable, but in May it received $18 million in funding to keep it going. Radfar said he is continuing to work with publishers and advertisers to reach Web surfers. "Monetizing is the next step," he said.

Last week, Mokhtarzada rebranded Freewebs as Webs.com. The change reflects the company's evolution from a make-your-own Web site platform to more of an online community.

Webs became profitable in the third quarter, but Mokhtarzada is still carefully watching spending. "Any good CEO right now should be at least cautious, even if they're optimistic," he said. "It's a very tough environment to raise any capital. There's definitely going to be a lot more focus, just like during the last tech bust, on companies that are generating revenue."

Radfar said the tech community has grown much more diverse since he arrived in Washington. "There is a strong base of entreprenuers who get the Internet and data," he said.

The economic slide could reduce the number of entreprenuers willing to take the risk to start a new company, Mokhtarzada said. "But a lot of great entrepreneurs start the way we started," by funding themselves instead of finding investors. "It's a good opportunity to do that."

--Kim Hart

By Terri Rupar  |  November 23, 2008; 8:00 PM ET  | Category:  Technology
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Comments

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Hi Kim,
Timely article, I missed social matchbox this time and I am glad you wrote about it. and this quote is golden "The maxim is that great companies are created in downtimes," Rainey said. "You do get rewarded if you can grow when it's not easy to grow."

Shashi Bellamkonda
Social Media Swami
http://blog.networksolutions.com

Posted by: shashib | November 24, 2008 8:56 AM

My Advice? Find a huge government contract.

Washington Area Recession Plan:
1.Volunteer at Walter Reed
2.Start a partnership with disabled vet
3.Qualify 8a
4.Schmooze your way into a piece of that 200 billion dollar Obama job stimulus.
5.Work your butt off because your country depends on you!!

Plan B.
1.Get a Government Job

Posted by: jcck | November 24, 2008 9:51 AM

Thanks for the great article Kim! I live in Montgomery County and was able to attend the recent Social Matchbox meeting. It was great learning about other local start-ups and seeing demos of their products. My brother and I just launched a website (www.lyvegyde.com) that gathers links to interesting and free, live online events. Hopefully the local start-up community will be able to hang in there through these tough financial times!

Posted by: lyvegyde | November 24, 2008 12:34 PM

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