Shannon Henry's The Download Live
Discussion about the Washington Region's Technology Industry
Thursday, April 5, 2001; Noon to 1 p.m. EST
Hello, and welcome to the Download Live with Shannon Henry, the "On Sabbatical" version. I'm on book leave now writing about Washington's technology culture. If I meet all my deadlines, the book will be published somewhere around 2002 by Simon & Schuster/Free Press. But I'm taking a lunch break live every first Thursday of the month to chat about technology in the region.
Check out the Download Live every month to talk about what's up on the local technology scene. Anybody getting funded? What new technologies are you seeing? Feel free to gripe and/or gush about whatever you're thinking at this very moment!
Shannon Henry has been covering the local technology scene since 1995,
documenting the success and failures of local tech companies, and the
culture and ideas of local business personalities. She began as the telecommunications and Internet reporter for Washington
Technology, which was later acquired by The Washington Post Co. Under
the Posts umbrella, Henry became founding editor of TechCapital
magazine, which focused on tech business and finance. Two years ago, Henry shifted gears to write the weekly Download column and other stories about the region. Her work is featured regularly at Washtech.com, The Washington Post site dedicated to covering the region's burgeoning technology sector.
Edited transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Hi everyone, welcome to this new version of Download Live. I'm home writing a book but I'll check in with you every first Thursday of the month at lunchtime, as long as you keep showing up. Well, it's beautiful outside today but as gloomy as can be in the local tech world. MicroStrategy laying off a third of its workforce, PSINet's woes....and this morning PricewaterhouseCoopers along with VentureOne Corp. announced that the Washington area received just $290 million in venture capital deals the first quarter of 2001. That's down from $595 million in the fourth quarter of 2000.
What do you have to say about all this? Send questions and comments now....
I attended the PricewaterhouseCoopers/VentureOne MoneyTree event this morning. Their first quarter snapshot shows only 20 deals worth $290 million. What's your reaction to that? Is the VC well quickly drying up, or should we take heart from the fact that some companies are truly getting funded?
Shannon Henry: I think these studies are fascinating because it shows us the just-the-facts evidence of funding drying up, rather than having to rely on anecdotes about how tough it's become. Yes, there's less money. And yes, the money VCs do have is tougher to get because they are pouring some of it into their current portfolio companies that can't get money anywhere else...and the VCs are being much more conservative these days in new investments. Some of the funds themselves are having trouble raising money from their sources-universities, pension funds, etc. It doesn't look like FBR Technology Venture Partners, whose first fund was one of the most successful in the region, will do a third one soon.
Some companies are still getting funded. People are coming up with new ideas. But I think the lesson here is that many, many companies can be successful businesses without venture funding. Get customers. Get revenues. And if you do it without VC, you own more of your business.
Is PSINet going to go out of business?
Shannon Henry: The fall of PSINet has been one of the saddest tech stories of the region. The company said this week it may have to file for bankruptcy. It's amazing to me that the CEO, Bill Schrader, could see so much other people couldn't even fathom yet he really paved the way for his own company's demise. It's likely the company will be picked up at a bargain-basement price. They are already selling off parts of the business. That's fitting for many of the silly dotcoms, but PSINet should have been different.
Silver Spring, MD:
Do you think the press -- yes, The Washington Post -- is spending too much time covering layoffs and other bad news and not reporting enough about the solid, strong companies in our area that are continuing to hire and grow?
Shannon Henry: Hi Silver Spring. This is one of several questions about the role of the press in the rise and fall of technology businesses and stocks. Now that things aren't so great, there's a lot of blame being passed around--VCs, investment bankers, public relations firms, the press. It's a whole food chain. In the press, we are now being criticized for being too negative. Or too positive, depending on the day. Our job is to report whatever is happening, no matter what it is. I get asked this particular question often. My answer is that if I don't write about the layoffs or bad news I would be portraying an incorrect picture of what is going on in the region. I don't think that's helpful to anyone--in fact it's a disservice to readers.
My repsonse to your opener is that I'm amazed so much venture capital was awarded for so long to start-ups that had no real plan to make any money. The late-'90's will be looked back on with a chuckle and a "how could we be so stupid?" The silver lining is that most capitalists now realize that if something sounds too good to be true, it is.
Shannon Henry: I think your analysis is right. The other silver lining for VCs is they are getting their pick of deals at much better valuations these days.
Falls Church, VA:
Shannon, I read that you're not going to be doing your column for the next eight months! What will we do without you?
Shannon Henry: Hi mom, what are you doing in Falls Church?! Or is this my editor Dan, who was seen dancing at my going away party at Buffalo Billiards? You'll be fine...we have a great staff of local technology reporters who put together the washtech.com page every day. They'll be rotating a column in the space Download used to have. Thanks for the nice words, whoever you are.
Shannon, I was at the PricewaterhouseCoopers MoneyTree breakfast this morning too. The panelists all talked about having trouble dealing with established companies -- because the executives were "arrogant" in their demand for more money, big staffs, big burn rates etc. They seemed to place all the blame on the companies. My question is: Don't VCs share some of the blame for creating these "arrogant" CEOs? I mean, these are the guys that funded all those companies that grew big fast!
Shannon Henry: Again, the blame thing. I think everyone involved deserves some credit and some blame. You're right, burn rates were high in part because VCs told companies to get big fast, and that meant spending lots of money. Here's something that I think gets missed a lot--not all VCs are created equal. Some are much better at it than others and have more experience than the executives at the company. Again, many companies could have good businesses without being a venture-backed company.
Shannon, help me understand those venture capital figures you mentioned at the outset. I don't know how this downward trend in VC financing compares to other regions in the U.S. I'd like to know how the D.C. area compares to other places around the country which, I assume, have also seen a decrease in VC financing over previous periods. Is Washington taking a bigger hit that others areas? Are tech firms in this area, taken as a whole, considered more risky than other regions?
Shannon Henry: That's a great question Arlington. I don't have the comparative numbers in front of me but I bet www.washtech.com has a link to the whole study. One of the things I've been trying to understand through the shakeout is how Washington will fare compared to the valley, New York, Boston, etc. In Washington's favor, there never were as many dot coms here as in the valley and new york. Value America was the biggest one in the area to go bust. However...the telecom and Internet service providers now struggling are a huge part of this area's technology economy. Something to watch is how many technology companies here are starting to talk again about how lucrative the government sector is. "Fortune One," here in our backyard is the biggest buyer of tech products and services in the world.
What will your book be written about?
Shannon Henry: I'm writing about technology culture in Washington. Having covered tech here since 1995, I've been taking lots of notes! It will be published in 2002 by Simon & Schuster/Free Press if it stays on schedule and I meet my deadlines. And no, my advance was not as big as Hillary's.
What's next for MicroStrategy, and does the fall of this once-local Blue Chip mean that the other titans are going to fall?
Shannon Henry: Ahh, MicroStrategy, or what many people have begun calling MicroTragedy. The fall from $333 per share to (I just looked this up) $2.6 per share is dramatic. A lot happened to them. They tried to get into several businesses at once, instead of focusing on one thing they could be great at. They promoted a CEO as the face of the company who is at once brilliant and scary, which put people off. They said they were profitable when they weren't, and they had to restate their earnings. They settled a fraud suit with the SEC over accounting issues. Revenue is down because other companies, hit with economic concerns, are buying less of their software. Wall Street is just not happy with tech stocks these days. Am I missing anything?
Are the N.Va. tech leaders united behind Mark Warner's gubernatorial race this year, or will the Republican nominee do well in the Dulles corridor?
Shannon Henry: Warner has great financial and emotional support from N. Va., even from staunch Republicans who have never donated to a Dem before. The techies think of him as "one of them." There is more to the state than N. Va, however. If he does win, his techie friends will expect a lot from him.
Is the collapse of technology stocks and drying up of so many startups going to impact your book plans?
Shannon Henry: Is this my book editor? Actually I started to work on this when things were beginning to come apart because I thought a whole stage in tech had ended. The rise and fall makes for an interesting story, I hope.
What do the Steve Case's of the world think about the current tech shakeout? Do they see it turning around? When?
Shannon Henry: Having not talked to Steve Case lately, I will just guess that he is thrilled beyond belief to have executed the takeover of Time Warner in the nick of time and to now watch Yahoo spiral downward. His timing could not have been better. But now he's got some non-tech challenges on his hands in managing a media empire, which will be interesting to watch.
What are the job prospects for marketing, communications and project managers like these days?
Shannon Henry: This is probably more of a question for our tech workplace columnist, Carrie Johnson. But I've been asking her the same thing lately. She says it's tougher for people in those fields than engineers/developers to find work. Across all the positions, she's seeing lower salaries offered.
Here's the (at least) $64,000 question: When do you think the tech market will bottom out here in the DC area, and begin the climb back up? I doubt anyone expects it to ever get back to where it was a year ago, say, but this trough seems a bit of an over correction, too. Your thoughts? (And I look forward to your book!)
Shannon Henry: If you read my column today you know I would have bet on Cybercash rather than AOL. Meaning, who knows, and certainly I don't. But the people I talk to these days seem to think the market has not yet hit bottom, that it will be bad for another 6 to 12 months and that it won't likely get back to the crazy join-the-party time again. Just an aggregated opinion from my sources.
With that happy news, I'm going to run. Thanks for showing up. I'll be back the first Thurs. of every month at lunchtime. So see you May 3. Bye!
Automatically Update Page
Get New Responses
© Copyright 2001 The Washington Post Company