Recession Won’t Dry Up VC Funding
Don’t worry too much, all you would-be entrepreneurs. If the shaky U.S. economy slips into
recession, venture capitalists will certainly rein in their investments—especially in
Web 2.0 and green technology—but aren’t expected to pull up as hard as they did when
the dotcom bubble burst, say industry observers.
Green or clean tech could be the first area to experience decreases in investment since
environmental causes take a backseat during a recession, says Mark Hessen, president of the
National Venture Capital Association, a trade organization. “Things like clean tech are nice
to have but they’re not required,” he says. “If times get tough, it might be on the chopping
Hessen adds that Web 2.0 startups could also see funding declines. “They get affected in
that most of those [Web 2.0] companies have a specific agenda, which is to get acquired by
companies like Google, Yahoo and eBay.”
Assuming Google or companies like it continue to invest robustly and acquire companies at a
rapid pace, small or midsize firms will have less to spend on startup acquisitions, says
Jeffrey Sohl, director of the Center for Venture Research at the University of New
Hampshire. That will slow the market for such deals, as those companies would be more
affected by a tanking economy. “Those companies are going to be affected a lot if we go into
recession,” he says. “For many investors, that exit [strategy] could dry up.”
On the surface, venture capital fund-raising hasn’t been this exuberant since the dotcom
bubble. According to a report by NVCA and Thomson Financial, VCs raised $34.7 billion in
funds in 2007. They haven’t raised that much since 2001, when they brought in $38.8 billion.
If a recession hits, however, it’s not clear how that will affect the acquisition strategies
of large technology vendors, which tend to formulate long-term plans for purchasing startups
or other competitors, says Alex Cullen, VP and research director of Forrester Research. “A
firm like an IBM, Google or Microsoft doesn’t base its acquisition budget on near-term
economic forecasts,” he says. “They’d drive themselves crazy if they did.”
The issue of venture capital hits home in the technology field, where investors were hurt by
the dotcom bust. But Hessen says investors learned their lesson. “Last time you had a Wild
West mentality,” Hessen says. “You had entrepreneurs assuming they’d be millionaires.”
VCs now demand that the companies in which they invest show viable business models and
ability to generate revenue, says Sohl. “In Web 1.0, you didn’t even need to do that,” he
says. “Today, they have to show they have a real company and real customers. They need to
show they can make money over time.”
Battle of the Social Networks
Social Networks Watch out, MySpace: Facebook may be gaining on you.
MySpace may get more traffic but Facebook remains the fastest growing social network,
according to a report from Hitwise last month. The report measured the market share of
social networking sites by calculating how many “visits” they received in December versus
the year before.
MySpace still leads when it comes to traffic, receiving 72 percent of overall U.S. Web
traffic from the 10 largest social networks in December. Facebook came in second with 16
percent. But the report paints a mixed picture for MySpace. About 95 percent of its December
visitors were return users who visited at least twice in the same 30 days, indicating user
loyalty. MySpace users spend an average of 30 minutes there, a half-minute less than last
year. Facebook trailed at 20 minutes, but that figure represents a nearly 10-minute increase
for the site. Sites use those numbers to generate ad revenue.
MySpace also saw its growth rate shrink 8 percent; Facebook’s jumped 51 percent over last
year. AMR Research VP and Analyst Jonathan Yarmis says those numbers show Facebook has
evolved from a collegiate phenomenon to engage a broader audience.”The growth rate says it
all,” he says. “Facebook has seen a ton of growth from people not in the 20-something
Yarmis says it will be interesting to see how MySpace and other social networks slow
Facebook’s growth. “What does everybody else do? Is OpenSocial the rallying platform that
allows a combination of sites to deliver something competitive to Facebook? We’ll have to
Remote Workers Pose Rising Security Threat
As the world’s mobile workforce increases, so does the threat such remote
workers represent to their organizations and IT departments, due largely to a lack of
related security training and awareness, according to a recent study.
Concern about the theft of sensitive company information is on the rise in most firms after
such high-profile incidents as the Department of Veterans Affairs laptop theft and the huge
TJX breach. Not surprisingly, 60 percent of organizations that participated in the Computing
Technology Industry Association (CompTIA) study said security concerns related to the use of
mobile devices like smartphones and PDAs have increased over the past year.
However, most organizations aren’t responding to the threat by increasing training. Though
nearly 80 percent of respondent organizations said they allow their mobile workers remote
access to data on corporate networks, less than one-third have implemented security
awareness training for those staffers. Furthermore, only 10 percent plan to offer new
security training related to the use of PDAs, smartphones, laptops or other mobile devices,
even though those that have implemented such security training say they have encountered a
smaller number of security breaches than in the past.
Smart CIOs educate their staffs on how to prevent known security threats before they happen,
as well as how to react to data thefts or other security breaches after the fact, according
to the study.
“Organizations that do not train their mobile workers in security fundamentals are doing
themselves a great disservice,” says John Venator, CompTIA president and chief executive
officer. “Nearly 90 percent of organizations that have implemented awareness training for
remote and mobile workers believe that the number of security breaches they’ve encountered
has been reduced.”
Market research firm TNS Prognostics was commissioned by CompTIA to conduct the fifth
installment of the “Trends in Information Security: Analysis of IT Security and the
Workforce” survey. Data was collected from more than 1,000 IT professionals during February
2007. The study also includes findings from 3,600 surveys conducted since 2002.
IT Leaders Take Too Many Cues from Wall Street, Study Says
CIOs seeking applause from Wall Street continue to widen the rift with end users who feel
they have better technology at home than at work, according to an Accenture study released
last month. IT leaders remain too focused on tweaking existing systems rather than making
the large changes that users desire, according to the study, which queried the senior-most
IT executive at nearly 300 Fortune 1000 companies in North America, Europe, Asia-Pacific and
“CEOs and CIOs must decide between offering technology-literate
customers new products and
services that are truly unique, versus receiving a short round of applause from investment
fund managers for holding the line on spending,” says Bob Suh, Accenture’s chief technology
strategist. The study concludes that “the chasm between Wall Street and Main Street is wide
and deep, with little evidence that companies and organizations are working to close it.”
- IT teams spend 40 percent of their time on existing systems—up slightly from
Accenture’s last global IT study in 2005.
- Just a fraction of respondents are looking seriously at collaboration tools such as
wikis for knowledge workers. Thirty-five percent are “committing mobile applications to a
major part of their business.”
- High-performing IT shops lead the way in legacy integration using service-oriented
architecture. Composite apps built using SOA make up 38 percent of high performers’
application portfolios; 45 percent of new application functionalities are based on use and
reuse of existing services.
Working to Live, Not Living to Work
Americans are more chained to their jobs than ever, thanks to their cell phones, BlackBerrys
and laptops. Right? Wrong, says an online poll from Monster.com. U.S. workers are
career-oriented but are less likely to say they “work to live” than their European
counterparts. In fact, 63 percent of U.S. workers and 59 percent of European ones seek rich
experiences from life—not necessarily big paychecks from work.
||I work to LIVE
||I live to WORK
By The Numbers
Virtualization Management: New Rules, New Benchmarks
You may be doing a terrific job getting your data center virtualized but, as with every IT
project, you still need metrics to show the business how well things are going.
There is, however, one big problem with that: The discipline of virtualization management is
still in its infancy. Many enterprises only rolled out virtualization to production machines
(rather than testing and development machines) in 2007. And while market leader VMware has
offered management tools from the get-go, other vendors are just now starting to compete in
that arena. A recent study by IDC (a CIO sister company) urges IT leaders to
benchmark their virtualization management efforts and examines some early metrics that may
help. And now’s the time to make managing your virtual infrastructure a priority, especially
as you allocate IT budget and staff, says IDC research director Stephen Elliot. Otherwise,
you won’t be able to optimize virtualization results or savings, or develop a strategic plan
for the future.
For instance, what does your virtualization management team look like? According to IDC, 15
percent of IT groups are creating a dedicated team to manage the overall virtualization
effort, bringing together experts from the various IT disciplines.
However, 85 percent of enterprises are creating their management group inside their server
and/or storage teams. This may not be the best approach. Experts say you need to create a
team that also includes network and security gurus. (For more on virtualization, read “ABC: An Introduction to Virtualization“.)
Remember, while virtualization can reduce the number of boxes in your data center, it
doesn’t eliminate all the associated management challenges. In fact, it can just compress
the time that the IT group has to identify and solve performance problems, says IDC’s
As you project ROI, remember to allocate budget for virtualization management and security
If your enterprise is using ITIL or another framework for managing IT process, make your
virtual infrastructure part of those plans. Virtualization will only increase as a
percentage of your overall IT environment in the future.
Virtualization will become a high-profile part of IT’s work rather quickly. Business-side
demands for improved business continuity and for new applications will mean that for many
enterprises, virtualization management will become a strategic project within two years of