"My picture is that - and hopefully soon - this cascade of warning after the markets close everyday, will slow down or stop and we may bump along for about six months," says Bernie. "I don't really see anything major happening until the end of the year. I don't see a big bounce. We're still going down, I mean companies are still cutting people. That's got to ripple through .. so if it goes two [quarters]and we sort of pull out of it, or bumble along for two or three quarters .. I could live with that."

In fact, a mild recession has its upsides, as Bernie explains. For starters, you clean out the amateurs and superficial players who rushed in with everyone else when the market was hot. Entrepreneurs will now need to be prepared to make the commitment needed to make the business successful. They have to be sure that they've got something they believe in.

Financing Fads

First business-to-consumer (B2C) was hot, then business-to-business (B2B), and now wireless and broadband are generating a lot of interest. Venture capital, like fashion, has become faddish, Bernie says. "Hemlines go up, hemlines go down. Toes are pointed, toes are square .. I think it's part of a whole psychology of 'everybody's looking for quick satisfaction'. They want to get rich, and if people want to invest and get rich, VCs want a 50-bagger."

"Plus, I think another factor to that is that we are now in a world where we're looking at deals and you couldn't even dream of this stuff five years ago. People walk into our office and I say, 'like this is incredible.' And it may be a year or two off yet, but those are the ones that you've got to get in and be patient with. So I think there is this constant and much more quicker barrage of .. new things, anyway. And somebody gets their fancy, and away they go. They are the flavour of the month."

"Our flavour of the month is going to be infrastructure kind of deals - I don't know if you've heard the term 'arms dealer'. We want to be the people that develop the technology that other people will use," says Bernie. "For example, we're into hosting technology that we're going to sell to all the big telephone companies that bought all these ISPs and now they're getting in the web hosting business because long distance has gone down the chute. So we'll sell it to all the four or five majors, and let them compete. So they'll be selling their product, but we're going to be selling all of them our product. That's infrastructure."

"Another area would be enabling technologies that really solve a real business problem and allows people to do things that they could never do before, or do them in a 'paradigm-shift' – in a remarkably new way – that they will revolutionize things. So those things we are very interested in, and again you've got to be a bit patient, because people are reticent to change .. they're getting better. And the third really is sort of the whole wireless area of applications, be it on the Internet or telecom. You know, third world companies are just skipping a whole generation of wires," he says.

However, just because high tech has seen a downturn you shouldn't expect money to be redirected into new sectors. While biotech, with its scientific components, may see some activity, Bernie doesn't expect other areas such as mining, distribution and manufacturing to see a boost in deals. "I think what it might do is just shift money to safer things, like utilities and bonds and debt. Biotech might be a good one because it's still kind of scientific as an upside. It seems to have taken a bit of a hammering lately anyway, but that would be one. But I don't think that there's many others like it."

Part 1: Venture Capital: Financing Early Stage Deals in 2001
Part 2: Revised Financing Requirements: Back to Basics
Part 3: Recession worries?
Part 4: Making Contact