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Federal Contracting Might Not Be Safe Harbor in This Downturn

By Kim Hart
Monday, December 22, 2008

Washington is safer for businesses than most places, the reasoning goes, because the government is always there and spending money. Government contracts tend to offer stable revenue streams when commercial and consumer business dry up.

But this time, the transition to a new presidential administration means few, if any, new projects will be announced in the coming months, said Kenneth Bartee, former president and chief executive of McDonald Bradley, which was acquired by government contractor ManTech International a year ago. "You're going to see work be slower than it has been in a long time," he said at a panel last week put together by the Northern Virginia Technology Council.

Fellow panel member Matt Goddard, chief executive of R2integrated, a digital marketing firm with offices in Falls Church, cautioned against grasping for government work just to stay afloat because some products and services simply don't fit government needs.

"People, out of desperation, are trying to find customers anywhere they can," he said. "But ask yourself, 'Why did I create this product and who should I be selling to?' "

The panel was focused on how small tech firms can save money for what's expected to be a lean year up ahead.

"You almost have to have a negative view of things and spend money that way," Bartee said. "You can always adjust your budget upward, but once you've spent the money, there's no going back."

But trimming budgets too much could hurt a company's prospects when things start to improve, some business owners warned.

David S. Wiley, president and chief executive of Widelity, a telecom consulting firm, said he has bred a "culture of frugality" in the company, which operates out of an incubator space at George Mason University's Mason Enterprise Center in Fairfax to keep overhead costs low. "But we're so conservative that I wonder if that will hold us back from future opportunities."

Bartee said a common reflex to dwindling business is to cut sales teams and marketing budgets. He warned that getting rid of those assets could leave a company worse off when conditions brighten.

"If you're not doing business development, you'll be dead in the water coming out of this," he said. "You can't afford to give up your sales team."

Software Firms Land Venture Deals

Investors may be scaling back dramatically, but some are still willing to put money into what they see as promising ventures.

Two Maryland software companies -- JackBe of Chevy Chase and Overture Technologies of Bethesda -- managed to snag $5 million and $6 million, respectively, in new financing last week. Both companies have seen demand for their products pick up since the rest of the economy turned south.

JackBe, borrowing a page from the consumer trend of "mashing up" video clips and sound bites to create new media, aims to let businesses do the same thing with pieces of information.

Instead of spending thousands of dollars on separate databases, chief executive Luis Derechin said companies are realizing they can save money by combining only the pieces they need. Derechin said JackBe is finding new business in some of the hardest-hit industries, such as financial services. Such firms want to use its products for data-intensive processes, such as risk management. And he hopes that will continue as more emphasis is placed on tracking dollars spent on loans, Wall Street rescue plans and budgets.

"The only way to have that oversight is to bring together information to make sure people are complying with the rules," Derechin said. "Mash-ups help you bring together data from several different sources."

JackBe also announced Wayne Jackson will chair its board of directors. Jackson led the 2007 initial public offering of software firm Sourcefire and co-founded Riverbed Technologies, which was acquired in 2000 for approximately $1 billion.

The new round of funding, bringing JackBe's total investment to $24 million, comes from existing investors including Core Capital Partners and Darby Technology Ventures, both based in the District, as well as Harbert Venture Partners in Alabama, Blue Chip Venture in Ohio and Intel Capital.

Overture Technologies has developed software that assesses the value of mortgages and student loans and finds options for borrowers who are unable to make payments.

Chief executive Bill Kelvie said the company has found success with the firms handling mortgages and loans that have gone into default.

"We can recalibrate those loans and find out what they're truly worth," said Kelvie, former chief information officer for Fannie Mae. "Merrill Lynch sold troubled mortgages for 22 cents on the dollar, but they're worth substantially more than that. Our tool can be used to determine what a rational price would be for a package of mortgages."

Overture also announced the addition of Tim Meyers, managing partner at Capital Trust Ventures in the District, to its board of directors. Meyers, former general partner at Updata Ventures, led the company's new round of funding with College Park-based New Markets Growth Fund and CNF Investments of Bethesda.

Kim Hart writes about Washington's technology scene every other Monday. Contact her at hartk@washpost.com.

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