So how bad is it really ...

Despite the temptation of saying, yet again, it’s the worst I can remember, I’d really rather focus on the positive. Besides, as is known by anyone who served in the military, the human body fortunately has no long-term memory of pain (or pleasure for that matter, more's the pity ...).

Remembering waking up one September morning in California to the radio saying something about a plane accident, and later getting a call from a Buddy in DC working at the Pentagon ... its hard to imagine anything worse than that. For sure in Silicon Valley we were plunged into Tech nuclear winter--you couldn’t fund a gold mine let alone a tech startup. But we managed to raise money and survive--and cleantech and a new generation of biotech were born out of that disaster.

Half a dozen chip companies started shipping in 2002, ramped revenues to $100M by 2004 and went public with stellar returns. Is this now worse? Sure, but it's still just part of the cycle. Having lived and managed startups through three of these things already, I was hoping I might be able to spot the next one coming ;-) fat chance! But in hindsight, when all things are clear, I can remember some common elements. First, at the top as we were unknowingly racing towards the precipice, taxi drivers, airport luggage handlers, and bellhops were giving stock tips. Everyone was in the market, and companies that probably had no right going public managed to do it. Underwriters were having a drunken orgy of fees and pumping everything they could into the market, and big hedge funds were driving the IPOs to generate stellar returns, and then shorting the stocks to profit even more on the way down--and that’s just the Australian market, which is one of the more conservative! There is a cycle of disbelief, anger and blame, endless lawsuits as shoddy underwriters try to find someone else to blame for their mistakes, audit firms fall for failing to properly report numbers, and weak BoD members are crushed because they believed what inconsistent management teams told them.

Some of the lawsuits from the last downturn are still going on. Happily the JDSU one just ended a few months back and Kevin (former CEO) emerged victorious--it’s a shame he couldn’t countersue those that drove that ridiculous claim. Anyway, one difference this time is that in addition to the stock tips, those same people were also giving property advice--a friend bought 19 properties over a two-year period. When I asked him if they were financed on full recourse loans he said “what’s that?” Frothiness shows, but the trouble is you can keep riding it as long as you are not the last one to the exit.

There is a similar pattern in recovery--we never know we have hit the bottom until about six months later. But again in hindsight, we have some clear signs--last time, as the Nasdaq tumbled from over 5,000 down to 1,400 (where it is now) it had been dropping at 100 points per day when it hit 1400 and a well known fund manager friend told me, well at least it will be all over in two weeks ... capitulation. There is a point where we all just get sick of it--even the newspapers get sick of publishing doom and gloom, and start looking for something else. We don’t care how cheap a house is in Stockton, we just aren’t going to buy it, and things stop. We take a breath, look around and amazingly the sun comes up again. We are still alive, the world still turns, and eventually we go back to work and stop worrying about it. At least 50% of any recession is in our minds--once we get sick and tired of being afraid, the engine starts again and things get better. There is also a point where greed overcomes fear again, and people start thinking that the market really is on sale and this is a once in a lifetime chance to buy blue chips at bargain basement prices.

I do think this one is bad, but it will get better, and there are some remarkable opportunities out there for all ;-)