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Investors dole advice to struggling start-ups

SAN JOSE, Calif. -- The layoff body count grows by the day. As fallout from the financial crisis rains down on Silicon Valley, some investors and entrepreneurs compare themselves to battlefield surgeons facing difficult decisions to enhance survival chances.

On a day Pillar Data Systems, a San Jose storage company backed by billionaire Larry Ellison, terminated 150 employees, prominent angel investor Ron Conway last month told a business gathering in Palo Alto, Calif., that many companies are being forced to perform "triage."

Meanwhile, start-up founders described the "heartbreaking" pressures of laying off workers in anticipation of a profound, prolonged recession. In the next breath, they noted that layoffs and the recession have made premium talent available at a more reasonable price.

Pillar's former employees add to the numbers already laid off by Yahoo, EBay and numerous start-ups in recent weeks. Pillar lost about 30 per cent of its personnel in the cutbacks taken "to weather the storm," company spokesman Chris Drago said.

Survival advice -- tactics for cutting costs and raising money -- topped the agenda at the quickly organized confab dubbed "RecessionBeat."

Prominent investors such as Conway, Google angel investor Ram Shriram and John Doerr of Kleiner Perkins Caufield & Byers weighed in on the crisis in a panel discussion.

"This is no ordinary business cycle. This is a crisis," Calacanis said. "My prediction is that Google will lay off people. And that's when we'll know we've hit the bottom."

Shriram chilled entrepreneurs by suggesting the valley could flash back to the 1980s, when he said it took him 18 months to raise $3 million US for a start-up. The days of easy money are gone, he said.

Striking a more positive tone, Conway said the valley is better prepared for this downturn than it was when the dot-com crash hit early this decade. Back then, 70 per cent of the more than 200 companies he seeded went out of business. Currently, Conway figured that about 13 per cent of more than 130 start-ups in his portfolio have about six months of operating cash.

He and his partners are pressing those companies to either economize greatly, secure a bridge loan or else "prepare for an orderly shutdown."