Technology, Venture Capital, Private Equity

It goes without saying that recessions by definition are difficult times for businesses in general. Yet, we often hear how some businesses/economies/countries are more protected from recession than others. But, on closer examination, it becomes evident that such defences from downturns are either mythical or marginal at best. The three instances of this from the recent past that readily come to my mind are: the Indian economy, Indian IT companies and Google. Many observers had till quite recently euphorically declared that all of these will not be adversely impacted by any of the weaknesses in the global economy.  The reasons offered may have been different in each case, but the conclusion was the same. However, in each of these, it seems that such enthusiasm was a little premature. Lets take each of these separately.
Talking of the Indian economy, if the performance of the Indian bourses are any indication, then clearly, none of the investors (especially the overseas ones) are buying into the “economic decoupling” argument about the Indian economy. The recent subprime writeoffs suffered by ICICI Bank are further evidence of the extent to which we are integrated into the global economy (Geez! who would would have anticipated that?). I am personally not very convinced with the argument that we are less export driven than other countries and hence less succeptible to a recession. Its just such a highly interconnected and complex world, that it does not take too much time for the ripple effects (both good and bad) to travel quickly to places far removed from the origin. For instance, it is well known that the real estate markets (especially in financial centers such as Mumbai) are highly corelated to the stock markets. And while we are already witnessing the effects of the global liquidity crunch on the Indian stock markets, the real estate markets are expected to follow suit. The effects on the real estate sector then get transported to other adjoining sectors such as construction, commodities etc. A similar case can be made for other industies such as hospitality, travel, transportation, business services etc, all of which are driven one way or the other by both local and global economic well being.
Lets turn our attention to Google, whose stock has been on a steep decline for the past few months and has reported lower CTRs and weaker forecasts than anticipated. Similar is the case with the Indian IT companies, which again have lost the favour of the capital markets. The effects are being felt even by the largest and most diversified of all IT companies, TCS, which has just announced a round of layoffs and pay cuts. Not to speak of any of the lesser ones. In both these cases, it was believed that these businesses offered such unique value to customers that in down turns, they wouldn’t tone down their engagement with them and perhaps may even increase it in order to save costs. However, its quite obvious that thats not been the case. Maybe its just human nature to clutch to hope in difficult times. In my earlier job as a techie, we were doing a project for a startup in Silicon Valley after the dot com burst. This was a supply chain software startup, who were building a mobile (WAP) interface to their product. We wondered about spending a large sum of money during such a lean period. But, the management seemed to believe that since SCM s/w helps companies manage costs, the sales for their product will increase during a downturn and hence, they should be gearing up for growth. Of course, the ending is quite predictable. Shortly later, we came to know that the company had closed shop. Moral of the story - while a rising tide may lift all boats, equally well, a raging storm blows away everything in its way. So, be very careful when someone says - “We are recession proof”.