Recession clouds hopes for cash-hungry startups

Venture cash scarce, but still available for the most innovative companies, investors say.

Startups that can prove their products reduce cost and increase revenue have a huge advantage, Kalra says.

From the current crop of DEMO companies, Kalra said his favorites are 7 Billion People and Zuora, each of which developed e-commerce platforms; and Purewire, which unveiled an Internet security product.

"Looking at the startup landscape there are a number of interesting companies out there and a number of them are very bullish on their prospects," Kalra says.

But even in good times, the reality is a large number of new companies will simply fail. Tech investors said there are both positives and negatives to having less venture cash available. After all, the ability to raise venture capital isn't exactly the same as the ability to create an innovative, commercially successful company.

"Any time you look at the startup community you expect a high failure rate," investor Christine Herron of First Round Capital said during the panel discussion. "It's actually healthy to have less capital going in and have it be more competitive for people to get funded. It's a good thing."

Hornick said having a venture landscape overflowing with cash doesn't necessarily promote an efficient market in which smart people build good ideas. Even in a down economy, there should be enough money to fund the truly innovative startups, he said.

"There will always be technology that is game changing and exciting and people say 'I want to invest in that,'" he said.

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