Recession clouds hopes for cash-hungry startups

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

"There is nothing like a recession to clear out the clutter," Shipley said. "[Companies] that are a little bit faster, a little bit more courageous are winning the day."

Skout, one of the 39 presenters, is dealing with the economic downturn by putting fund-raising on the back burner and focusing on building go-to-market partnerships with larger companies.

Skout offers a location-based dating service accessed through mobile devices. CEO and founder Christian Wiklund says the online dating industry tends to be somewhat recession-proof, but notes that starting any company these days has its challenges.

"From a startup perspective, of course it's going to be tougher to raise funds," Wiklund said. "You have to be more frugal and you have to more agile in how you get to cash flow as soon as possible."

The smaller number of presenters at this year's DEMO reflects not only the poor economy but also Shipley's refusal to lower the bar, Marshall says.

"There are fewer companies out there, there is less noise," he said. "Chris was keeping some discipline in how she selected companies. Just to keep to the threshold we had before of 50 or above would be pointless if you were letting in companies of lower quality."

It's clear that investors today will be most interested in ideas that require little up-front cash, but that doesn't mean a great innovation will be scuttled just because it requires a big investment, Marshall says.

"If there's a great idea, they're not going to go by the wayside," Marshall says. "The thing is, we're seeing fewer great ideas, I think."

Tarun Kalra of Battery Ventures attended DEMO but said it's too early to tell whether he'll invest in any of the 39 technologies presented at the show. Emerging technologies like cloud computing and virtualization should provide an opening to startups who can build sophisticated systems management software products, he said.

"The big IT expenditures right now are in the cloud computing and virtual environments," Kalra said in an interview. "Systems administrators and IT staff have these really advanced environments that they don't know how to control, how to provision the resources below them. This creates a huge need and a huge opportunity for big new platforms that provide functionality for systems administrators."

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