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Subprime Mortgage Crisis and Startups

October 22nd, 2007 by Jacob Ukelson

I am not sure why we haven’t heard more about the effect of the sub-prime mortgage crisis on startups and VCs, but it seems clear to me that we will see an effect. The bad 3Q results (and bad 4Q forecasts) for many financial institutions will have a delayed effect on many later stage enterprise software startups. 

The Finance industry is a very large consumer of technology, and in many cases willing to be an early adopter of interesting technology. Of course, as with any downturn, new initiatives are always an easy target, and usually the first to go. Many enterprise software startups pin their hopes on selling their products to large US financial institutions. Those that have already signed deals- congratulations! Those that have deal propects in the pipeline, but haven’t signed the deal - don’t count your chickens, at least until the banks start growing again. 

No matter how the larger economic issues play out - the subprime  mortgage crisis will be a bad deal for startups.

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One Response to “Subprime Mortgage Crisis and Startups”

  1. Alastair Bathgate Says:

    Unless your product plays into this “downturn” environment. E.g. it enables costs to be cut quickly, incrementally, and payback is within the budget cycle.
    UK banks, for example, are focussed on short term cost income ratios so are very sensitive to large investments that take time to deliver the upside. No matter how large that upside may be, if the benefit trails the investment by much it will not be liked.

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