Stock markets crashing. Banks going under. People losing their jobs. People losing their houses. It's an environment that you would probably think only happens in a movie. Wall street greed coupled with over zealous consumers taking on mortgages they know they can't afford. It's a very warped and complicated issue that I have become somewhat obsessed with over the past 30 days.
Who is to blame? Some say Wall street, some say the government (or lack there of), and some say home buyers themselves. It's all of the above. Normally, this type of situation is called a correction where the prices of assets / securities come down after a period of extraordinary increase. The thing I think we are all missing as it relates to this economic crisis is that markets are supposed to go up and down. We are becoming a country where when the market's go down, all of a sudden it's a catastrophe. Well the housing market should not have gone up as high as it did over such a short period of time. Housing prices hit such high levels in certain areas that financially qualified families that would have purchased homes could not purchase them. Instead, these homes were bid up and purchased by investors and consumers that could not pay off the loans unless the housing values continued to skyrocket up.
Now, I am not an advocate of tough love but I am an advocate of letting the markets and the economy correct as it should. This is basic economics. What goes up must come down. We can't artificially hold up markets that have unjustifiable pricing built into them. It's like trying to put a house on a foundation of thread. The house will eventually fall because the foundation is still flawed and flimsy. A short-term solution to a long-term problem. WE SHOULD NOT PLAY GOD WITH ECONOMICS!
Let those on Wall street who made bazzillions of dollars screwing over everyday citizens' money burn. We do need some intervention and perhaps some safety nets to ensure Americans' money and retirement plans are not compromised because of these greedy, careless, pigs. But let's let these Wall street pigs feel the pain that most of us have felt. Fire every top executive in these failed institutions and make them give a portion of their bonuses back for what is obviously not good performance. It's common sense that someone who drives a company into the ground should not receive multi-million dollar bonuses.
Now on to the effects of this market meltdown on Internet start-ups. To me it's quite clear. The only major effect is that the fundraising environment is uncertain. Funds will invest more in existing portfolio companies to ensure they don't go belly-up and as a consequence, will allocate less funds to new investments. Also, if you have a business that is not generating any revenue / cash and you have planned on funding losses through lots of high valuation fundraising, go to PLAN B. This means cost cutting and optimizing revenue and cash generation to further cut losses. Unfortunately, in a period of fundraising uncertainty, cash is king. For very small start-up operations, it just means continuing to be streamlined and staying lean and mean in terms of costs. Keeping a low monthly cash burn critical. The financial meltdown has little impact on efficient operations other than consumers spending a little less and you not being able to raise capital as soon as you may have thought you could have. If you were prudent and baked in some tough times ahead when you originally raised funds, then you should be fine. If not, you will have to cut costs to make sure you have enough cash to get through this crisis, which should start to turn for the better in early 2009.
Long story short, run your business as it should be run, crisis or no crisis. Efficient, disciplined spending with innovative product development. Things we should all be doing all of the time. Right?
