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Tech entrepreneurs changing strategies, not products

Money is getting tight, but that doesn't mean start-ups should give up, say investors at the Startonomics conference in San Francisco.

Yay start-ups! Rafe Needleman / CNET

Correction: Dave McClure's role at the conference has been corrected.

Proving that a fundamental characteristic of a start-up entrepreneur is unbridled optimism, the mood Thursday at Dealmaker Media's Startonomics conference in San Francisco was buoyant, in the middle of the United States' worst economic crises in a generation.

That's not to say that the game is not changing for entrepreneurs or the people who fund them.

On the funding side, ubiquitous valley VC Jeff Clavier's advice is straightforward: Raise as much money as you can. "If there is more available, take more." I asked if this attitude shifts the power in the entrepreneurial economy back to the funding side of the aisle from where it's been in the past year, on the start-ups' side. Yes, he said, by giving this advice: "Don't be dilution-sensitive. Take the money."

Clavier is currently investing in start-ups, although what he's looking for has changed. "I'm still doing deals for businesses with baked-in business models." He explained that pure media plays and most social media ideas are out of his favor, but operations where all traffic is directly monetized are attractive.

"Don't be dilution-sensitive. Take the money."
--Jeff Clavier, venture capitalist

It won't be an easy few years for entrepreneurs no matter how much money they have, he said. "You have to have platinum balls."

Dave McClure, co-organizer of the Startonomics conference and an investor in start-ups himself, says he's still investing. He advises entrepreneurs to pay attention to the parts of the economy that have not changed. "People still have to pay their electric bills," he says. Taking trips to Mexico, though: not so much. He has a partner whose customers are financial institutions, and he's looking to see how or if they'll be able to expand their customer base.

McClure agrees with Clavier: "Raise a little more capital if you can," he said.

Many of the entrepreneurs at this conference are making subtle changes in their business, but I did not find any radically shifting their direction.

Timothy Young, CEO of the "Friendfeed for the Enterprise" company Socialcast (review), says that he has not pulled back on any plans based on the current climate. "We're keeping a closer eye on cap-ex and op-ex," he said, "but you can't be a cockroach." His company has business customers who are committed to multiyear contracts and, in fact on the development side, "we're pushing ahead a lot faster now," based on customer input. It's worth noting that Socialcast is a 3-year-old company; it's not as raw as many of the companies here at the conference. (review) CSO Tony Haile says his company has not raised venture funding, but feels, "there's still money out there. There's still a sense of optimism and opportunity." His company has not changed plans based on the economy, he says.

"We're trying to make our B round last longer."
--Daniel James, game developer

Peter Pham of BillShrink (review) has moved his working capital from a money market into treasury-backed securities, just to play it safe. But since he expects that "salaries will soften," he's looking forward to the coming tightness in the start-up economy. His operating strategy is, "Be tight. Be lean." There will be a decrease in competition, but he still believes that the way to approach running a company today is to treat it like being a contestant on Survivor, "with an emphasis on the "outlast" part," he says.

Game developer Daniel James of Three Rings says that nothing material is changing in his company, but that he's expecting a different kind of conversation with potential funders when he goes out to raise his third venture round. "We expect to be asked about points on the revenue graph, instead of points on the user acquisition graph." With that in mind, "We're trying to make our B round last longer."

Three Rings started in 2001, during another start-up funding crisis. James says, "It was a great time to start a company. There was no BS. No distraction." He feels the current climate is much the same.

See also:
How start-ups can survive.
Dealmaker Media's other conferences.