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What a scary market means for enterprise startups

Eric Knorr | July 1, 2016
As ominous economic signs loom, is a glorious run of exciting new tech cooked up by enterprise startups coming to an end?

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

What a scary market means for enterprise startups

I can't even count the ways startups have moved enterprise tech forward in the past few years in an unprecedented burst of technology development. Many have built themselves on open source projects, including Mesosphere on Mesos, Elastic on the ELK stack, Databricks on Spark, Datastax on Cassandra, and Docker on, well,Docker.

Other enterprise startups have set up shop in the cloud, with the likes ofGitHubSlackSumo Logic, and Birst delivering essential cloud services.

Today, we face a new round of macroeconomic peril along with a slowdown in venture funding over the past three quarters. Is the party over? Will we be at the mercy of the lumbering technology giants again? As Upfront Ventures' Mark Suster said in his blog during last August's stock market tumble: "In a period of 'uncertainty' about the future, venture capital rounds take longer -- particularly later-stage deals ... If the markets continue to go down expect less funding."

Market turmoil loomed over a panel discussion I attended last week hosted by Peter Levine, general partner at Andreessen Horowitz. It featured the CEOs of five startups: Ash Ashutosh of Actifio, JR Rivers of Cumulus Networks, Tobias Knaup of Mesosphere, Suhail Doshi of Mixpanel, and Todd McKinnon of Okta. The discussion turned out to be substantive across a range of topics, including cloud adoption, machine learning, which big industry players will stay relevant, and so on. 

But in the end the financial journalists in the audience prevailed, pulling the conversation toward the market downturn, precipitous drops in the stock prices of young tech companies (Twitter, LinkedIn, Box, etc.), and the effects of all this on startups. A few important points emerged:

  • As Levine said, how a downturn affects startups depends on where they are in their lifecycle. Now, for example, might not be a great time to file an S1. But if you're half of a two-person company developing your first product, it may not matter.
  • Box, which went public a little over year ago, has offered a cautionary tale for everyone. Its stock has lost over half its value in the past year and its burn rate has been exceedingly high.
  • Less available funding means startups can't get too far ahead of their revenue in pursuit of growth, McKinnon said. Okta, a cloud identity management play that has already gotten considerable traction, decided it's done raising for the foreseeable future.
  • For what it's worth, none of the five CEOs admitted to seeing a decline in customer demand as a result of recent headwinds.
  • Quoting the entrepreneur David Cummings, Doshi noted that it's always possible for a startup to go into "cockroach mode" and cut way back on expenses to survive a downturn.

 

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