Dark Clouds, Green Linings

Virtualization continues to shine amid economic distress in other IT segments.

• By Keith Ward
• 05/01/2009

There's no escaping the economy; it's undoubtedly the story of the year so far, and a Top 5 story of the decade. But even though we're walking through the Valley of the Shadow of Economic Death right now, not all industries are bleached carcasses by the side of the road.

Take virtualization, for instance. Our cover story this month ("Sunshine on a Cloudy Day") takes a look at why our own little corner of the IT world is surviving -- even thriving -- in some ways. This isn't false hope; it's real, tangible evidence that not everyone needs a government bailout.

VCs Can Still Show You the Money
This is true even if you're considering starting a new company with a virtualization angle. Although it may seem that venture capital (VC) dollars are drying up, that's not the case, says Justin J. Perreault, a general partner with Commonwealth Capital Ventures. Commonwealth, which specializes in early-stage funding for tech firms, has helped a number of virtualization companies, and it's ready to do more -- if the right venture comes along.

This doesn't mean that all you need is a great idea and a VC will back up a cash truck to your door. "There's no shortage of virtualization start-ups trying to play every angle. We're cautious because of the sheer number of companies in that space," Perreault says.

Still, he notes that the money hasn't dried up because of the recession. "The amount of money [available] hasn't changed," Perreault insists. "There's an abundance of venture capital available industry-wide ... what has changed is the willingness of the [VC] industry as a whole to fund as aggressively as 12 or 18 months ago. There's more scrutiny, more thought" going into funding decisions, Perreault says.

A Buyer's Market
But a promising virtualization start-up can still get off the ground, Perreault believes. "Downturns are often the best times to start businesses. There's a lot more talent available; a lot of talent is falling out of large companies [due to layoffs]. There's also lots of slightly used office furniture and critical infrastructure available cheaply," he explains.

The VCs also don't expect the same kind of immediate payback they saw in years past, easing some of the financial pressure on new businesses. "We're expecting companies to grow more slowly in '09 into 2010. Today's view is to make sure you're around for when the economy picks up," Perreault says.

Dawn Just over the Horizon?
When does he expect that pickup to happen? Perreault remains an optimist. "I think the earliest is the back half of this year. If not then, then early 2010." He adds: "I think any recovery will be moderate; a slow recovery ... Once credit gets flowing the other way, I think things will bounce back."

The bounce will be smaller for virtualization-focused companies than others, Perreault claims, because they'll suffer less than others. He's also encouraged by the maturation of the virtualization space, which he sees moving in new directions, including the lurch toward mobility. Virtualization will come through strong on the other side of the recession, Perreault says, because it simply "makes too much sense in terms of economics."

When do you think the economy will start to recover? E-mail me at [email protected].