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Tech Startups Optimistic About Hiring

Startup companies have long been the lifeblood of the high-tech industry. After the Internet bubble burst in 2001, startups had a tough time finding financing and gaining enough traction to develop new products and hire workers. But it looks as if the climate is changing.

Venture investment and startup data compiled for the first quarter of 2011 indicates both investors and young companies are becoming more comfortable with the business environment. A Silicon Valley Bank survey of 375 US-based, private, venture capital-backed software, hardware, life science, and cleantech companies revealed that startups are optimistic about current business opportunities.

Respondents say business conditions have improved and are improving further, and that they will continue to hire to support their growth. Nationwide, 83 percent plan to hire this year, up significantly from the already high percentage (73 percent) of startups that reported plans to hire in last year's report.

Greg Becker, CEO of SVB Financial Group and Silicon Valley Bank, was quoted in a press release:

    Because we work with amazing companies everyday that are creating new services and even industries, we have always known intuitively that the innovation sector will lead the U.S. in economic recovery. This new data, however, clearly shows that technology companies met or beat their 2010 revenue targets, are still experiencing improved business conditions and are creating U.S. jobs. There is no question that the innovation sector is making a tangible impact on the U.S. economy and our ability to compete globally.

While Silicon Valley has long been the center of high-tech innovation, the Boston area showed the biggest uptick in investment during the first quarter of 2011, according to The Wall Street Journal.

Overall, the US venture industry saw its most active first quarter since 2008. Investors deployed $6.44 billion in 661 deals in the first three months, a 35 percent dollar hike from the year-ago period, according to data from industry tracker VentureSource. The year-to-year increase was nearly across the board, with the IT, healthcare, cleantech, and consumer services sectors all rising.

There are still significant impediments to further growth, however: Respondents to the SVB report by and large identify limited access to equity capital and the regulatory and political environment as their largest impediments to growth. According to the report:

    Across startups, the regulatory issues of greatest concern were uncertainty about new regulations, the impact the overall regulatory environment has on risk taking, and health care reform. Life science companies are particularly concerned about the impact the regulatory environment is having on their ability to thrive: 64 percent of these companies say the regulatory environment is a challenge and 83 percent say the government could help them grow by improving the FDA approval process.

While the first-quarter data is promising, it will be awhile before market-watchers know for sure the climate is changing. Companies will need to demonstrate sustainable revenue growth before they can raise subsequent levels of funding or float an initial public offering. In 1999, US venture funding hit its highest level ever; by 2001 those funds had nearly disappeared. A longer cycle this time would indicate investors are being more careful with their money, and startups are targeting business models with long-term viability.

26 comments on “Tech Startups Optimistic About Hiring

  1. AnalyzeThis
    April 22, 2011

    Clearly there's a lot of money being poured into start-ups right now, but as you mention… there was also a lot of money being pumped into companies in 1999 and by 2001, the party was over. Will the music play a little longer this time around?

    I'm not completely sure. I think back in 1999 you did have more companies getting funded despite complete lack of viable business plans. Some companies like that still get funding these days, but usually a start-up has… you know… at least a vague idea of how they're going to be profitable long-term.

    So in some ways I'm more optimistic, but then I see things like the $41 million plus thrown at Color, which I believe essentially has essentially a 0% chance of ever becoming a profitable company.

    So I'm not sure. I think the success rate of these companies may be higher than in the past, but not dramatically so.

    Still, start-ups are generally good for the economy and they do create jobs… so if billionaires and large investors want to keep funding some of these questionable ideas, I don't really see that as a terrible problem.

  2. mfbertozzi
    April 23, 2011

     

    DennisQ, Barbara, things are going on exactly as per perspective reported. It seems one of main difference between current trend and the previuos one at “booble time” is related to location of investments. According to IDA Irland, several US startups are boosting again but hiring outside US. Could it be a temporary phenomenon or is it definitely the target (boosting yes, but hiring outside US?)

  3. jbond
    April 23, 2011

    This is good news for the economy, assuming this is going to be going on for a sustainable time and not just a false sense of growth. I think it is very promising to hear the numbers coming in so far, the key factor is going to see what the numbers look like at year’s end. And if the trend continues to the end of the year, will it still be growing?

  4. DataCrunch
    April 23, 2011

    DennisQ makes a good point and uses Color as an example.  Whether or not the company will be a profitable one is yet to be determined, but investors do like to put money into ventures with a proven management team and in some cases the investors don’t really understand the technology or business altogether.  In Color’s case, the CEO Bill Nguyen who is a serial entrepreneur sold his last company Lala, an online music company to Apple has a track record building startups and selling them.  This sometimes outweighs all other factors during due diligence with investors.

  5. Nemos
    April 24, 2011

    “investors are being more careful with their money, and startups are targeting business models with long-term viability.”

    I am not an economist expert or a person with an economic education but a  person with a pure and clear logic,   and I believe that in this small phrase hides a healthy economic thesis.

    Furthermore, business and companies that target models with long term viability are more stable and durable in time.   That fact can guarantee more vacancies and lead to economical growth. 

  6. Ms. Daisy
    April 24, 2011

    Its good news to know that there are new opportunities for the startup companies. These new creative ventures have been the backbone of the economy and certainly needed for the economic recovery.

    Yes you are right “Companies will need to demonstrate sustainable revenue growth before they can raise subsequent levels of funding or float an initial public offering”.

  7. Kunmi
    April 25, 2011

    Good to hear and pleasant to know that tech jobs are opening for hiring. It is quite obvious that many investors are being careful in what they investing in, but getting people back to work is a good sign of revamping the economy. It is a good turning point. I hope it stays.

  8. saranyatil
    April 25, 2011

    According to me Startup companies have huge potentials because they are very careful in picking the stake holders and engineers. Now with a groomed economy it is definitely going to be a plus for huge hiring and lot of people venturing into small companies.

  9. mfbertozzi
    April 25, 2011

    I believe Nemos has caught the point, truly; nowadays start-ups have to create not a new bubble era, but a stable era. Hiring as current trend outside US to reduce costs cannot be alone but in pairs with other criteria to sustain a real plan for business, jobs, people and market.

  10. Himanshugupta
    April 25, 2011

    Saranyatil, I am not too sure whether startup are too picky on inverstors and employees but one thing is sure that they (and the people working in them) are full of energy and hope. I have worked in a startup and there is so much freedom to work. Most of the startups do not have hierarcy and try minimal paperwork. Good place to work and learn for fresh graduates!

  11. Himanshugupta
    April 25, 2011

    Nemos, this is quite different from what i have heard about the investors who want to invest in startups. Usually investors are not so much interested in let's say 5 year or 10 year plan but they look for fast return on their money. So most of the investment has been in the IT, where the product delivery time is quite short.

    If investors are putting money in startups where the business model itself is for the long term then it is indeed a very good news.

  12. electronics862
    April 25, 2011

    I do agree that startups are the ideal place to start your career. Mainly because you get to do a lot of work yourself and also as there are fewer people the bonding between them will be better…

  13. eemom
    April 25, 2011

    I found this data surprising given the overall economic conditions.  Companies that have the cash are hoarding it so the fact that investors would risk money in new start ups is surprising.  It is indeed good news though and with unemployment still high, start ups have a large pool or talented, experienced personnel to draw from.

  14. Anna Young
    April 26, 2011

    Barbara, this is a  highly welcome news. It is a good a cheer in the present global economic climate – I think its a step forward in the right direction.

    The fact that the report recorded 83 percent planning to hire this year  nationwide indicating an increase in hiring already in place for startups businesses in IT, Health care and Customer service industries, is pleasing to hear.

    Provided this is happening as the report stated, further growth impediments are surmountable. This is beneficial for the economy and the political environment too, so with a bit of lobbying and envidence that something is moving well in a positive direction as indicated by the report,equity access would somehow open up to sustain the growth – don't you think?

     

     

  15. saranyatil
    April 26, 2011

    Himanshugupta,

    Yeah definitely start ups is a good place its a healthy environment for freshers.

  16. Barbara Jorgensen
    April 26, 2011

    I agree this is good news and, if the money continues to be invested in start-ups, they may be able to buck the overall economic trend. The problem is at some point, unless there is a marekt for new products, the money may dry up. I agree the current economic market conditions make everyhting look risky, but if investors have faith in the business model and continue to invest, these compnaies may set the pace for the next stage of economic growth

  17. elctrnx_lyf
    April 26, 2011

    It is good to hear the startups are on rise and the job opportunities are also rising. Lifesciences sector is really a big regulated industry beside avionics and automotive. Is there any detailed report avilable on the tech start ups like what are the different sectors these companies are actually going to serve.

  18. Eldredge
    April 27, 2011

    Startups and small companies are great places to work  because of the many opportunities to perfronm tasks outside of the pingeonholed responsibilities that are sometimes established at larger corporations. Startups, specirfically, will be higher risk for long term employment because of the speculative nature of their existance, but they also have the greatest opportunity for rapid growth. Let's hope the economt continues to encourage new tech companies.

  19. Tim Votapka
    April 27, 2011

    I'm a firm believer in the viability of our life science companies, startup on up the line. Sure employment may be a risk; it is anywhere. However if you can prove you're a producer in any area of the organization, you'll thrive. I've worked with a half-dozen or more leading biotech firms in the last 10 years and only one went through downsizing, and that was due to a relocation from which many employees opted out. And yes, FDA's procedures for product review and approval have been a barrier to product marketing, but not one that truly suppresses R&D.

  20. Eldredge
    April 28, 2011

    Tvotapka, I agree … although my experience has been in the tech manufacturing area (perhaps a little more volatie), my most rewarding jobs have been with small companies. They almost always provide an better environment for organizational and personal growth.

  21. Tim Votapka
    April 28, 2011

    And I'll bet you found the smaller organizations quicker on the draw whenever a major change needed to be implemented. A good friend of mine once used the analogy of a ferry we both used often. Once the ship pulled away from the dock it had to do a 180-degree turn in a narrow harbor before it got underway. As you might figure, this was slow process. Methodical and on target, yes, but slow simply because there was so much mass to move. This is often the case in corporations, even though it doesn't have to be.

  22. Eldredge
    April 28, 2011

    Absolutely quicker. In larger corporations, it takes an extra effort to 'knock down barriers' to get things accomplished quickly. Often those 'barriers' don't exist in smaller entities.

  23. electronics862
    April 28, 2011

    Yes,It is a risk but at start ups you may have the chance to get things done by your way…they may not have a lot of rules and regulations…

  24. mario8a
    April 28, 2011

    Hi

    Our company has the head-quarters in the Sillicon Valley and we can see in first hand the invesment and partnership of medium – large corporations, our company change the bussines model quite often to accomodate the rapid growth and customer demands, market condtions look promising. 

    Regards

  25. Tim Votapka
    April 28, 2011

    The smaller the organization or group, the more important a role each member plays in its survival. This often creates a level of necessity to move more efficiently. Afterall power equals the speed at which particles flow. In the case of an organization the particles are the bits of data (information, orders, invoices, approvals, etc.) you must move through the organization.

    A good, 7-division organizing board can lay out the pattern very well so that when the group does expand, it will be far less likely to get bogged down in its own tracks.

  26. SunitaT
    April 29, 2011

    Barbara,

     Good to hear that tech starups are optimistic about hiring. But I am not sure if this optimism is going to sustain. One of the biggest threats to this optimism is rising inflation and rising commodity prices. Moreover as the Fed becomes freer and easier with money, the markets become more volatile, undisciplined, and risky.

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