Next Things First


“Fleeing Angels” in This Tough Economy by charlottegee
February 3, 2009, 1:51 pm
Filed under: angel investors, economy, innovation | Tags: ,

The New York Times today added yet another article to the pile of depressing news on how this long cold winter just keeps getting tougher for entrepreneurs and innovators:

Angel investors are the optimistic financiers who give entrepreneurs their crucial first infusion of cash to bring their ideas to life. Now, in the midst of a punishing economic downturn that is sparing few companies, these patrons are cutting back on their bets and threatening the very foundation of the technology economy.

Unlike venture capitalists, angels invest small amounts of their own money — as little as $10,000 and usually less than $1 million — in very young companies. But like all investors, many angels suffered deep losses when the market plunged last fall.

That has left them skittish, investing in fewer technology start-ups and demanding more of those they do consider, leaving founders struggling to find money at the stage they need it most. The slowdown, entrepreneurs and investors say, could stunt the growth of new companies and have long-term effects on innovation.

Rob’s post on TechFlash in January highlighted the negative effects of a downtrodden economy on innovation (eerily similar to the Times article!):

The only good news for companies raising capital has come from high net worth investors and angel networks—but these pools of capital are reaching their limits. They cannot be expected to pick up all of the slack left by venture capitalists. So, as we move into 2009, we expect the companies “waiting it out” will finally launch fundraising efforts—and the demand for capital will significantly outstrip the supply. Angels won’t be able to keep up and the traditional venture community will remain focused on less risky deals and on reserving capital for existing portfolio companies. While I hope to be proved wrong, we are predicting that these trends will lead to continued loss of early-stage jobs and the unwinding of early-stage businesses. Worse, this will have a chilling on our Innovation Economy—shutting down a major engine of economic growth and job creation.

aerosmith30301On TechFlash today, John Cook wisely pointed out, also in response to the Times article, that “getting a good read on the angel market is nearly impossible, since it’s a nebulous group of unconnected investors who don’t necessarily share similar philosophies.” He asked blog readers to share their thoughts on the current angel market, and opinions are mixed, surprise, surprise.

Posted by CharlotteGee

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“And the Hits Just Keep Coming” by charlottegee
January 23, 2009, 8:48 am
Filed under: economy, hospitals | Tags: ,

One of my old bosses used to say that, whenever some unpleasant email hit his inbox or a complaint was left in his voice mail. (He also would whistle loudly, high pitch to low pitch, sounding like a bomb flying to the ground, if something especially bad had transpired. I do this now, like when I open my gas bill.)

These days, well, the hits just keep coming. Every day I hope to see some good (miraculous?) news about the economy, about unemployment rates, about start-ups being formed and funded, but it is slow to come. Yesterday (waiting two days for Inauguration fever to pass), the AHA released an announcement dramatically titled “HOSPITALS REPORT ‘CAPITAL CRUNCH’ IS FORCING DELAYS IN FACILITY AND TECHNOLOGICAL UPGRADES THAT WOULD BENEFIT COMMUNITIES’ HEALTH AND WELL-BEING,” along with the (very nicely designed) report. From the press release:

From cancer centers to expanded emergency departments to electronic health records systems, hospitals are postponing or delaying projects that could greatly benefit health care in communities across the country,” said AHA President and CEO Rich Umbdenstock. “Stopping these projects also means new jobs are not created within the health care field or for construction workers, contractors, IT specialists and others. The ripple effects of the capital crunch on employment are cause for great concern.” Stopping or postponing facility upgrades and technology investments has significant ramifications for communities served by these hospitals and for the health care system as a whole.

And a few highlights:

  • More than 8 out of 10 hospitals said they have delayed projects to update or replace aging clinical equipment or use IT to automate clinical processes.
  • More than six out of 10 hospitals reported that facility upgrades, and clinical and information technology projects would have increased patient care efficiency and improved quality of care.
  • Nearly 60 percent of hospitals said the IT projects that are put on hold would have improved care coordination.

I have a feeling a few of those companies providing services to hospitals may need to update a few things–like their PowerPoints and “Market Opportunity” sections of the business plan–at least for now.

Don't Know What You Got (Till It's Gone) -- Via Hal

Don't Know What You Got (Till It's Gone) -- Via Hal

Related: Health Reform Passes! (In China)

Posted by CharlotteGee



Rob Coppedge on John Cook’s Venture Blog (TechFlash) by charlottegee
January 2, 2009, 1:00 pm
Filed under: economy, innovation, venture capital | Tags: ,

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You can find Rob over on TechFlash, as a guest columnist for John Cook’s esteemed Venture Blog. Rob’s piece, titledGovernment should support the innovation economy,” provides a bit of the good, the bad and the ugly (but never fear … it ends on a somewhat positive note).

An (ugly) excerpt:

So, as we move into 2009, we expect the companies “waiting it out” will finally launch fundraising efforts—and the demand for capital will significantly outstrip the supply.

Angels won’t be able to keep up and the traditional venture community will remain focused on less risky deals and on reserving capital for existing portfolio companies. While I hope to be proved wrong, we [at Faultline Ventures] are predicting that these trends will lead to continued loss of early-stage jobs and the unwinding of early-stage businesses.

Worse, this will have a chilling on our Innovation Economy—shutting down a major engine of economic growth and job creation.

Check out the entire post to see how we might be able to uncover some of the good.

Posted by CharlotteGee



Running on Empty by Rob Coppedge

The snow storm that has left Seattle immobilized (the schools were closed a day *before* the storm, just for good measure) has created the perfect  cold, wintry environment to read the just released National Venture Capital Association survey.  It confirms the icy predictions we’ve been making over the past month – things do not look good for start ups and early stage companies in 2009. In fact, for those that will need the capital markets, things look quite bad.

Respected Seattle business journalist John Cook comments on the NVCA report:

I’ve been informally conducting my own survey of VCs, lawyers and entrepreneurs around town.  The message I am hearing is not pretty, with one VC saying that nearly everyone is hunkered down. Long-time tech entrepreneurs such as The Cobalt Group’s John Holt and Jobster’s Jeff Seely have told me recently that it is about the worst economic environment they have seen.

The general feeling is that the capital markets may be shut for another 12 to 18 months, meaning that startup companies will have to learn to exist on the fumes of their previous venture rounds or get to profitability sooner than anticipated.

Running on fumes… Wow. I made the mistake of using that line with several start up CEOs recently and they almost took my head off. “What do you think we’ve been doing?” “We don’t have any fumes left… we ran out in the third quarter”.

A 70s Flashback for Start Ups

Running on Empty: A 70s Flashback for Start Ups

Without access to capital many of these early stage companies won’t make it to the next gas pump. Unfortunately, with news like this NVCA survey and  Coller’s Global LP Barometer, it doesn’t sound like the capital markets are going to show any sympathy.

Sure, there may be bigger problems out there.  But when billions of dollars are spent to bail out industries that  need to shed jobs, it is troubling to see the innovation and job creation engine of our economy seriously threatened by a lack of relatively small amounts of capital (mere rounding errors to the Treasury’s bailout accountants).

Posted by RobC



Holiday Pink Slips: Aetna Layoffs and More by charlottegee
December 18, 2008, 1:04 pm
Filed under: economy | Tags:

Yesterday’s news that Aetna is laying off around 1,000 people, or less than 3% of its workforce, coupled with a variety of other cuts in the works (See: Boston Medical to cut staff, services / Hospitals and nursing homes staggered by state budget cuts, Officials expect layoffs, closures / NY Governor’s Budget Slashes School Aid and Health Care Spending / Austin Regional Clinic cuts 60 jobs, closes Rundberg Lane clinic)—brings to question whether health care is indeed recession-resistant, as we so often hear. Or, perhaps it’s just that certain business models/organizational structures/policies are not immune … you know, only the strongest (smartest?) survive.

At any rate, it’s never a good thing to read headlines about layoffs and budget cuts, and it’s especially scary in the health care industry, as it has the potential to affect so many people on such a personal, basic level.

Our eyes are a-watch on 2009 and the changes and challenges and (we hope) good things a new year, a new administration and a new way of looking at health care can bring.

Predictions?

Posted by CharlotteGee



The Big Push for Healthcare IT … Economic + Political Perspectives (From Howard Luks) by charlottegee
December 15, 2008, 10:57 am
Filed under: economy, health it, health policy | Tags: , ,

During a speech last week in DC in front of the Department of Health and Human Services Health Policy Forum (with nearly 50 of America’s thought leaders on disruptive healthcare), Ben Sasser, the Assistant Secretary of Health, commented that the projections for Medicare Part A funding were wrong. The Department figured out last week that Part A funding will be bankrupt prior to the end of Obama’s second term!! And solvency of Medicare will not be the only healthcare (HC) issue this administration will need to tackle.

President-elect Obama, Senator Baucus and others are crafting numerous initiatives they plan to bring forward early during the new administration’s first term. Most of these initiatives are geared toward *reforming* the healthcare system. There are innumerable issues that need to be addressed under the auspices of HC reform. Access, quality, efficiency, diminishing medical errors, minimizing duplication, waste and affordability are *simply* a few of the issues the administration will need to contend with.

It appears the incoming Obama HC team believes, right or wrong, that a big push into HC IT infrastructure will pose as the spark toward adoption of more widespread reform. There are both economic and political reasons why it makes sense to tack the IT spend onto the current stimulus package under consideration.

From an economic perspective, a big push into HC IT will result in jobs being added to the only sector of the economy that has demonstrated job growth over the last two quarters. Heading into 2009, job growth is going to slow in the HC sector as federal and state Medicaid funding is severely cut during the next round of budget cuts. (Consider: In New York State, Governor Patterson’s staff already has informed hospitals to plan for their worst nightmare.)

Combined with the tightening of the credits markets, hospitals are going to be hard pressed to offer services to the poor, uninsured and under-insured. “No margin, no service” will become the rule of the hospital landscape in 2009. Both the credit markets and financial issues will most certainly impact the ability of hospitals to pursue large capital intensive IT initiatives.

The AMA news recently reported that “Despite changes to federal rules that allow hospitals to donate health IT to physicians, studies show neither hospitals nor physicians are jumping at the opportunity.” No doubt, the cuts in state funding, the increase in the uninsured, and thus the increased financial stress on hospitals that offer services to the uninsured, will make it impossible for hospitals to spend money on IT without government assistance.

Therefore, *if* the incoming administration *believes* that a HC IT initiative is necessary as a stimulus for job creation and broader HC reform, the timing for tacking on a HC IT initiative as part of the current stimulus package is perfect.

From a political perspective, tacking on a HC IT spend to the current economic stimulus package will virtually assure its passage. The Democrats are working very hard to get a *comprehensive* stimulus package ready for President-elect Obama’s signature within a few weeks of entering office. All indications point to the fact that the monetary figure will be enormous — but many economists believe that deficit (Depressionary) spending and contemporary New Deal programs are *necessary* if we are to avoid a significant deepening of the current recession. That theory will give proponents of a HC IT initiative the ammunition necessary to obtain the necessary support for a 5-year, $50-billion IT package.

Perhaps most important: After the passage of an enormous stimulus package, it will be difficult for the new administration to obtain support of an exceptionally expensive comprehensive healthcare reform package — strictly based upon the cost of such an effort. By taking the $50 billion IT spend (and SCHIP spending) out of the HC Reform package, the overall cost of healthcare reform will *appear* lower … and perhaps more palatable to fiscally conservative members of Congress.

Bottom line? Healthcare IT is estimated to be at least a $50 billion industry in the United States. Anybody who chooses not to participate could be giving up a potentially large amount of revenue.

Submitted by Howard J Luks, MD



Steve Jobs on Strategy During the Recession by Rob Coppedge
December 14, 2008, 3:28 pm
Filed under: economy | Tags:

We really like this quote from Steve Jobs that one of our contributors sent across this morning…  a fairly interesting (and totally Jobs-ian) way to look at things:

“We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place ― the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.”

Click here to read more…