High-tech wrestles with credit crisis
Meeting attempts to find opportunity amid Wall St. mess
BURLINGTON - What do you do if you're hosting a powwow on building new technology businesses at a time when credit is frozen and the economy is teetering on the brink of recession?
In true entrepreneurial fashion, you improvise.
"We got some bad times coming," organizer Bill Warner, founder of Avid Technology, admitted in his greeting to 225 entrepreneurs and investors gathered at Sun Microsystems yesterday. "We all know that. . . . Hey, in our business that's good. In bad times, people are more open to new ideas. In bad times, people get laid off and start thinking more creatively."
Yesterday's "unconference," sponsored by the Massachusetts Technology Leadership Council, was billed as a day of free-flowing idea-swapping - the agenda assembled on the fly - about how the state's high-tech industry could grow its own Googles and catch up with perennial rival Silicon Valley. But the crisis in the financial markets intruded on many of the sessions and hallway discussions.
Participants talked about their fears of losing customers, their hopes of capitalizing on emerging needs, and the lessons to be learned from past financial busts. Some blamed the weak economy on the excesses of Wall Street and insisted a correction is overdue.
"The operating guys used to tell the financial guys what to do," said Arthur Goldstein, former chief executive of Watertown water purification company Ionics Inc. "Then we got to where the financial guys were telling the operating guys what to do. The pendulum has swung too far, and now it's going to go back the other way."
One session, titled "Transparent Financial Systems: How to Prevent a Repeat of a Meltdown," was run by Charles Peppler, chief executive of Capnetix, a Hamilton start-up that makes web-based software and databases to improve the reporting of financial data. For Peppler, the crisis on Wall Street is a business opportunity.
"I'm trying to think about what's going to happen after the current mess," he told about a half dozen people gathered in a small conference room. "Trust is the word. What is the economic value of trust? If you trust something, you're willing to put money into it."
"Stability has value," agreed Adam Caper, managing director of Synchrony Venture Management, a Boston firm that advises midsize companies seeking to bankroll entrepreneurial ventures. "Let's invest in it so we have rules of the road."
Healthcare entrepreneur Catherine Schindewolf of Braintree said she attended the session because she was alarmed about the international fallout from the Wall Street bank failures. "I just came back from Europe," she said. "People there are worried sick. They're worried about the health of their businesses if capital dries up."
At least one person at the session, however, was skeptical that better financial transparency software could prevent a meltdown.
"I don't think there's anyone in the business who didn't know things were leveraged very heavily," said Jeremy Wertheimer, chief executive of ITA Software in Cambridge, which sells applications for the travel industry. "But as long as they were making money, they didn't care. It's greed on the way up, and it's greed on the way down."
Down the hall, a pair of investors stood by the "agenda wall," where participants posted ideas for sessions, and talked about the impact of the financial crisis on high-tech start-ups.
"I think it could be worse than the bubble," said Michael Greeley, managing general partner at Flybridge Capital Partners in Boston. "A lot of people could be on the sidelines for four or five years."
Greeley said the uncertain environment for cashing out on investments has made it harder for his venture capital firm to recruit chief executives for its portfolio companies, especially candidates willing to accept lower salaries in exchange for stock in Flybridge-funded start-ups. "They don't value equity the way they used to," he said. "If they're going to leave a big company, they want a cash package."
James Geshwiler, managing director at CommonAngels, a Lexington investment group that funds small early-stage companies, said well-run start-ups will still be attractive to corporate buyers with pools of cash. But because there is no market for initial public offerings, valuations aren't likely to rise, he said. "You're going to see a lot of mergers and acquisitions, but buyers will have all the leverage," Geshwiler predicted.
In the cafeteria of the Sun Microsystems conference center, Han Pieter Duyverman said Wall Street's woes are hurting the ability of his company to sell its business software to financial companies.
"We have a number of deals that were supposed to be closed being put on hold," lamented Duyverman, the Cambridge-based vice president of business development for Mendix, a Dutch company.
At a session led by Warner, who built Avid, the high-flying Tewksbury digital media tool maker, some legendary technology leaders talked about managing companies during past economic downturns to ensure that they would be stronger when business rebounded.
"Those may not have been happy times for individuals," recalled George Hatsopoulos, former president of Thermo Electron Corp., the Waltham maker of scientific equipment. "But during every one of those periods, the company gained position."
Bernard Gordon, founder of the Peabody medical imaging company Analogic Corp., said it's important for businesses to keep faith with their employees during tough financial times.
"There's an old Navy statement that loyalty downward begets loyalty upward," Gordon said. "I've seen one company lay off 80 percent of their inventors to save money. That's a very stupid thing to do."
Robert Weisman can be reached at weisman@globe.com. 