Venture Capital

Are we in a recession?

By January 28, 2008 4 Comments

On Saturday Scoble pondered the question that is on everyone’s lips from his standpoint in Davos. I like the way he captures the two sides of the debate.

First the bull side:

I spoke with Steve Forbes last night (yes, that Steve Forbes) and he thinks that the doom and gloomers shouldn’t be listened to. He sees one quarter of bad news and then sees the economy coming back in the second quarter.

I forget his name, but a senior partner at Accel Venture Partners told me while we were waiting for a bus together that he’s watching the sales and other data from 250 startups reporting to Accel and he sees nothing but growth and is very optimistic. That optimism has been shared among the VC’s I’ve run into this week.

Then the bear side:

On the other hand, the subprime problems are very real. I know a couple of people who are getting kicked out of their homes because they couldn’t afford to keep up with payments. Now, you can blame these people, but one of these families has an autistic child and so the mom can’t work. That wasn’t something they planned on, but they are getting evicted nonetheless and this is in Silicon Valley in Saratoga, a pretty rich community.

Right now I would say it is impossible to know, which is right. Like the Accel guy our portfolio is still doing well, but then it always takes a little while for falling house prices to feed through to lower consumer demand and reduced spend on IT. For sure there is a lot of pain in the financial sector and if Forbes is wrong and things don’t bounce back quickly we will start to feel it all around the economy. I have seen some pretty gloomy estimates of further massive writedowns to come and if you made get off the fence I would say I’m more worried that the pain will spread than optimistic it will get better.

The comments on Scoble’s post show his readers are mostly in the bear camp. It would be interesting to hear how it feels for you guys, who are a more European crowd.