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Time to clean up on smart investments in nuclear winter, says Intersouth VC

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Editor’s note: This is the latest in a series of Local Tech Wire interviews with top tech executives in the Carolinas and Georgia about the “nuclear winter” that has settled in around the globe and how companies can survive – or thrive.

DURHAM, N.C. — Katrin Burt, one of the newest venture capitalists in the Triangle, likes what she sees in the future for entrepreneurs who are “realistic, creative and perseverant” as the world’s economy slows in this nuclear winter of 2009.

Burt, who focuses on technology investments at Intersouth Partners, sees ample opportunities in clean tech, biofuels and other energy-saving technologies. She also believes that out of the current venture funding and recession will come jobs and career paths for individuals who are willing to step outside their “comfort zone.”

The LTW Q&A with Burt:

A "nuclear winter" appears to have descended upon us as a New Year begins. But in the last such "winter" the Internet and Web 2.0 emerged as entrepreneurs seized upon tough times to deliver innovation and to grow their businesses or start new ones, not just survive.

What is your advice to fellow and would-be entrepreneurs entering the New Year – Conserve, cut or invest? None of these? Please explain.

Depends on what state and stage the entrepreneur’s company is in. Early stage companies should cut as much as possible to maximize the time window they have to prove out whatever they’re trying to do (introduce a new product or technology platform, define a business model, etc). For later-stage companies that already have some customer traction and that have a lower funding risk, they should also cut fairly aggressively where they can to help stay competitive, but they should also be on the lookout for investment opportunities. Many attractive investment opportunities are likely to appear over the next 12 months, so patience and selectivity are important.

Overall, it’s much easier for entrepreneurs to quickly ramp up spending again if things improve than it is for them to realize too late that they need to make dramatic cuts if things get a lot worse before they get better.

Who will be not just the survivors but the winners still standing when the recession ends sometime in 2009?

Entrepreneurs who are realistic, creative and perseverant.

What is your biggest fear/concern entering the New Year?

That the broader population outside of the business community might be overly optimistic about near-term stabilization and recovery of both the financial markets and the broader economy.

Conversely, what are you most optimistic about?

Downturns like this one can create momentum for early adopters of new technologies to appear in larger numbers and sooner than might otherwise be the case. For example in the area of clean tech, combining leadership from government with leadership from businesses could have a meaningful impact on adoption of certain technologies. A downturn like this one may be a particularly strong incentive to certain business leaders to refocus on completely different paths to profit, thus beginning to put in place infrastructure and resources that will allow startups in the space to be more commercially viable than they have been to date.

Financial markets can be both unpredictable and cyclical at the same time. Although it’s impossible to predict whether markets will stabilize or continue to fall in the near term, at some point in the next one to three years, we’ll reach the turning point where the economy expands and grows again. There will be some great venture opportunities coming out of this downturn run by highly disciplined and experienced entrepreneurs.

In what areas do you see opportunities for growth in 2009 – Means to help companies become more efficient? Enabling technology to help people do more with mobile devices? Investments in clean technology? Further evolution of the Web? Tell us what you think.

Infrastructure for biofuels and solar technologies; early stage R&D opportunities in technologies for the transportation industry and technologies for water treatment and purification; clean tech opportunities on the demand-management side (e.g. technologies that make it easy for businesses and consumers to reduce energy consumption; technologies that take the concept of reuse/recycle to the next level); next generation of long-distance communication/collaboration technologies (e.g. virtual worlds/telepresence) that are attractive for mainstream business use.

If the IPO markets remained closed, how can life-science, medical device and other capital-intensive startups best generate cash to keep investors onboard and the company doors open while pursing R&D?

Companies can always turn to government funding, strategic investment from corporate partners and joint-development projects with larger companies.

What do you believe will be executives’ biggest challenges this year – Financing? Growing sales? Balancing the cutting of costs with need for R&D as well as consumer support?

There will be an increasing pool of highly skilled and available human capital and an increasing set of technologies/companies available for acquisition. Picking the right time and price at which to bring in new talent and acquire assets will be a challenge. Managing expectations of investors and employees will also be a big challenge with so much uncertainty in the economy and so much noise from the public, the government and the media.

Will venture financing tighten, especially for startups, as recent surveys have indicated? If so, how do you (or) your clients (or) your portfolio companies adapt?

Yes. Portfolio companies need to look at alternative/creative funding sources (such as those suggested earlier) and pro-actively perform triage between different programs/technologies that they plan to pursue.

What advice would you offer to job-seekers in such a tough environment?

Step outside comfort zone when looking for employment opportunities. Take the opportunity to think strategically about which industries are likely to come out of this downturn stronger and consider how to adapt/improve existing skill set to take advantage of different kinds of jobs from those held previously.

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