Conway: Calling The Big Chill

The chief pajandrums of Silicon Valley are singing in near-perfect harmony that the go-go days are behind us, and a nuclear winter may be descending on us following the melt-down of the US financial markets:

[from Credit Crisis Spreads a Pall Over Silicon Valley by Brad Stone and Claire Cain Miller] Ron Conway [...]

The main drivers of Silicon Valley’s growth are start-up companies and the venture capitalists who back them. Many say that these engines of innovation are still chugging along, thanks in part to lessons learned and wisdom gained in the dot-com crash.

Nevertheless, a pall of anxiety seems to be spreading over the land.

“Funding will tighten up. We are certainly going to see some ripple effects,” said Ron Conway, a prominent venture capitalist who has invested in hundreds of Web start-ups over the last decade.

Start-ups that have less than six months of cash in the bank “better reduce costs,” Mr. Conway said. “I will certainly be advising my companies to do that.”

I heard Ron Conway recently at the TechCrunch50 event, and he seemed one of the smartest guys in the room. There is no doubt that companies are contracting their plans in accrodance with the idea that the cash they have will have to last a lot longer than planned. Maybe twice as long. Or longer.

Vasanth Sriharan of Silicon Valley Insider got the full quote from Conway:

[from Super Angel Ron Conway To Would-Be Startups: Don't Quit Your Day Jobs]

I would tell (entrepreneurs) to keep their day job until they got one year of funding, and if they couldn’t get that, then they’re not meant to start that company right now…. My advice to (start ups that don’t have a year’s worth of money in the bank) would be to raise money by reducing your own spending. If you can’t raise more money, you have to cut costs. And that’s what I’m harping on to my companies

Also, VCs and angels I have spoken to are expressing their beleif that they will likely have to put more cash that planned into their existing portfolio companies, which means that fewer new startups -- however worthy -- will get funding.

I expect we will see more of the old style two-guys-and-a-dog-in-a-garage-surviving-on-ramen-consulting-part-time-to-pay-the-rent startups, flying below the radar, and where only one in a hundred ever launch something that catches on.

And the chill has already spread into the second circle: all the providers of services to the start-ups, like PR firms, are hunkering down, cutting back, and (gulp) laying off.

I know for a fact that I have been getting calls, tweets, and emails from people I haven't seen or talked to in months or years who are looking for work. The big chill is here.