Photo: Orin Zebest via Flickr
The tech market has booms and busts, but one thing stays constant: most startups don’t succeed.That means that whatever the market is doing, there’s a more or less constant stream of companies that get shut down because they simply couldn’t raise enough money or get enough customers in time to repay their investors.
Today, blog peHUB posted a great interview with Marty Pichinson, the founder of Palo Alto consulting firm Sherwood Partners. The company is known as the undertaker of Silicon Valley for its role in shutting down startups and auctioning off their assets.
Here’s what we learned:
- Social networks, video distributors, and clean tech businesses are the types of companies being shut down now. The firm is also shutting down an online retailer — retail looks easy from the outside, but maintaining the proper amount of inventory is really complicated and can easily kill you if you get it wrong.
- Series B seems to be the “safe zone.” Sherwood shuts down a lot of companies that have closed angel funding and Series A rounds, but when companies get to Series B there seems to be a real push to go big and get to the next round. But by the time companies get to Series C or later, they often run into competitors who’ve gotten to scale first or can’t raise enough capital to make the huge push necessary for a successful exit.
- The most valuable asset is intellectual property. A few years ago, startups could sell their servers for tens of thousands of dollars. Now, they go for a fraction of the price. But a lot of companies have valuable patents and technology — most of which are bought by their former competitors, other small companies. Although some big guys also take place in the bidding to help protect themselves in the current patent war.
Although Pichinson expects his business to do better next year, he doesn’t think the current market slide is the main reason.
Rather, VCs always start more companies than can succeed, which has given Sherwood a pretty steady stream of business — the company’s biggest year was 2000, in the aftermath of the dot-com bust, but its second biggest year was 2010, when Silicon Valley was supposedly in a “bubble.”
The whole interview is worth reading.