- The Washington Times - Monday, December 25, 2000

The pipeline that provides technology companies with cash began to narrow considerably after Herndon-based SingleShop Inc. got $12.8 million in venture capital on Dec. 31, 1999.

The company barely made it under the wire because as the year 2000 progressed, venture capital firms funded fewer and fewer companies and cash-starved tech companies went under because they were unable to fund operations.

The new environment has forced tech companies to cut spending an approach antithetical to the free-spending habits corporate leaders engaged in before their prospects for raising money dimmed this year. Now tech companies are groping for ways to cut spending before they resort to the ultimate money-saving maneuver firing workers.

"The survivors are becoming more frugal. People are making money last as long as possible because you don't want to be out there trying to raise money right now," says Bill Neely, co-founder and communications director for SingleShop, whose software for e-commerce sites lets consumers make on-line transactions and price comparisons.

Tech companies are voiding accounts with public relations firms, cutting back on travel expenses and subleasing extra space to boost income.

And venture capital firms making investments in tech companies are paying more attention than ever to make sure "burn rates" the speed at which tech executives spend money aren't too rapid.

"Companies that don't have that ethic will disappear," says Jim Lynch, managing partner of Reston-based venture capital firm Draper Atlantic.

SingleShop leases a 26,000-square-foot office, but uses only half the space. So company leaders decided to sublease 45 percent of its office to two companies iKimbo Inc. and isavixx Corp, both smaller tech firms.

SingleShop, founded in 1998, also is cutting back on travel expenses.

When co-founder and chief executive Mike Bruce went to New York last Tuesday, he boarded the train and passed up the more expensive plane ride, even though he would have arrived at his destination sooner.

"If it were earlier in the year, he would have flown," Mr. Neely says.

What would have been a 43-minute jaunt turned into a three-hour train ride and a working trip.

Sanjay Singh, co-founder of Reston-based software development firm EBProvider Inc., still flies, but he always flies coach. And when he travels to India, where the seven-month-old firm has its research and development center, he stays with friends and co-workers.

"We definitely want to keep the burn rate low," says Mr. Singh, whose company got $1.5 million in venture capital two months ago from Draper Atlantic. "Why spend a dollar when you don't need to?"

Advertising budgets at tech firms have been cut drastically, says Henry D. Barratt Jr., managing director of McLean-based venture capital firm Blue Water Capital.

"People are spending less on public relations. Earlier in the year you had companies spending money to create a buzz about their companies. I've seen outrageous media budgets, and I think that is gone now," Mr. Barratt says.

Robyn Sachs, president and chief executive of RMR Associates Inc., a Rockville-based advertising, direct mail and public relations firm, has had two cash-strapped tech clients suspend marketing efforts, but her firm isn't the only one losing business.

"I've talked to other P.R. agencies and everyone is feeling it," she says.

Tech companies were aggressive spenders while it lasted, Ms. Sachs says. Some of that advertising money was spent on commercials during Super Bowl XXXIV, where 13 tech companies spent an average of $2.2 million for 30-second commercials during the game.

At least one of those tech companies, Pets.com, has closed since the Super Bowl.

"Earlier in the year, it was no holds barred. There was a lot of talk about tech companies needing adult supervision," says Neal Grunstra, president of Vienna-based consulting firm Mindbank Consulting Firm.

The lack of money to fund operations has caused executives in search of tech jobs to hesitate before accepting a position at a tech firm, says Paul Dinte, chief executive of Dinte Resources Inc., a McLean-based executive research firm.

Companies preparing to make an initial public offering once were an attractive prospect, but now job-seeking executives hesitate before accepting jobs with pre-IPO start-ups.

"We're finding executives are more attracted to companies that are generating revenue," Mr. Dinte says.

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