We’re Open For Business

Last week I met with the talented CEO of a growing company. His first question: “Are you still investing?”

Yes. We’re open for business.

The irony was that I had specifically stopped off to see him. I clearly had interest. But after watching the public markets and reading all the associated news, he felt compelled to ask. And rightly so, because a lot of investors have stopped investing altogether.

As reported in Private Equity week (September, 2007), MDV is currently investing out of our $580 million ninth fund. The firm has been working with entrepreneurs through thick and thin for nearly 25 years.

When I started my first company, I found it very hard to raise money. The market was grim and I had little startup experience. My two co-founders and I boot-strapped the business. The path was never easy. But we did it.

When I formed my second company in 2002, the market was just as grim. I was fortunate enough to have venture investors who believed in me and were open for business. As you have no doubt read elsewhere, some of the best tech companies were started during recessions.

There is no one-size-fits-all message we are delivering to our portfolio companies. With a diversified portfolio across sectors and within tech itself, no one message would fit them, nor would they want to be treated as numbers rather than as individuals. We’ve sat down with each portfolio company to take a hard look at their operating budgets, sales plans, and market approach.

Many of our entrepreneurs have seen it before. Coming from cash efficient or boot strapped backgrounds, they have been running lean and mean operations all along. Others see the current market as an opportunity to consolidate. They have a product that is selling well and they are going to keep on selling it, some even more aggressively than before.

Some rightly worry that customers will buy less. But some areas are selling better than ever before. Which ones? Those delivering peace of mind, such as security, compliance, or better customer service; cost savings; or incremental revenue.

Many have highly evolved sales models that don’t require customers to buy in big to get started. They have pricing models that align with the customer – no huge up front investment, but rather, pay as you go. Customers of companies like PBWiki and Ironkey, to name just two, are able to get started with a small purchase and then grow their spending as their needs grow. The result is large per customer revenue even with a small initial start.

Tech companies, especially those with SaaS models, are finding innovative ways to increase their runway. They are giving customers a discount for paying a full year up front. They’re incenting their sales forces to close one year deals with up front payments. And they’re charging for incremental usage such as bandwidth, storage, or transactions.

The bottom line is, great companies are still being built. They are doing it lean and mean, and they are doing it with the pain of experience under their belts. These days, there’s clearly no more security working for a large company than in running your own shop. If anything, doing a startup gives you more control.

Great entrepreneurs are continuing to invest their own time and energy, and we’re continuing to invest in great entrepreneurs.

We’re open for business.