SwampFox

Columbia Tech Firms Hit Hard

Submitted by: John Warner on Feb 03, 2002 at 6:00 am Tagged with: General Archives Source:

Swamp Fox

Columbia Tech Firms Hit Hard
By JOE GUY COLLIER
Staff Writer

The State

Rich Cannon's technology firm, Impressa, was flush with cash and promise two
years ago.
The company had just raised $16 million from investors. Impressa, which built
Web sites and Web-related software, was as a rising star.
Two years later, the money is gone and so are the hopes of making it big.
Impressa closed its downtown Columbia offices the Friday before Christmas,
laying off 45 employees.
Today, Cannon, who has a 4-year-old daughter and wife expecting their second
child, is dealing with pressing personal matters, like lining up health
insurance.
"I've tried to keep a level head through all of it," Cannon said. "Life really
shouldn't be that good, and life really shouldn't be that bad."
The crash of the technology market has had a sobering effect on Cannon and the
rest of Columbia's technology community.
While Columbia never saw a boom on the scale of Silicon Valley, signs of the
dot-com bust can be seen throughout the city's business landscape.
Firms such as Impressa and HealthMagic, a health-care Internet company, have
shut down. LogicSouth, the largest locally owned Internet Service Provider,
filed for bankruptcy in January.
Other companies -- including the Web development firm Syneractive, software
provider Agilera, and Conita, which makes voice-driven software -- have cut
their staffs by a third or more.
With the closings and cutbacks, the focus has changed. Technology executives
say they're looking for paying customers, not just venture capitalists to back
unproven ideas.
Those companies that didn't raise large sums of money actually consider
themselves lucky. By not scaling up so quickly, they were spared a long fall
down.
David Dunn, chief executive of Columbia technology firm VC3, said the measure
of success is different after the crash.
Columbia's technology circles aren't buzzing these days with talk about who's
raising money or taking off fast, Dunn said "We sit around and talk about who
we think is going to fail next."
FROM BOOM TO BUST
Cannon said he thought Impressa had all the makings of a technology success
story.
Three years after graduating from Duke University, Cannon and four college
friends started the company, originally known as Renaissance.
In 1999, the founders of the former garage start-up were crisscrossing the
United States, making pitches to wealthy venture capitalists.
Impressa didn't have trouble raising $16 million, Cannon said. With the stock
market riding high and the Internet gaining steam, investors were looking for
companies to back, he said.
"Just think how many people did extremely well in 1999," Cannon said. "We were
asking people to meet with us in December. They were headed to Hawaii the next
month."
But the bubble burst in 2000. The Nasdaq composite, an index of publicly traded
technology firms, lost half its value.
Venture capital investments, which go primarily to young technology firms, went
from a record $26 billion in the first quarter of 2000 in the United States to
less than $11 billion in the first quarter of 2001.
Cannon's Impressa had commitments for its $16 million before the crash. It was
able to weather the first wave of the downturn.
For most of last year, though, the company whittled away its work force as
sales expectations soured. In late December, Impressa shut down.
Closing the company wasn't easy, Cannon said, especially right before Christmas.
"My wife did a good job," he said. "She talked to my mom and dad and everyone
else and told them I needed a week to chill and get my head in place."
'IT'S AGONIZING'
Jeff McElroy, founder and chief executive of Conita Technologies, has been able
to keep his company afloat through the downturn, but he said the pressure has
been intense.
Conita makes a voice-activated software product called a Personal Virtual
Assistant. The company has received $12 million in venture capital investments.
In March 2000, Conita projected within two years it would have more than 100
employees in downtown Columbia. The company now has 25 employees after laying
off 15 people in November.
"I don't think people realized how bad it was going to get and how long it was
going to stay there," McElroy said.
Young technology firms have been hit by two major challenges, he said.
Financial backing for new companies has dried up as investors recover from a
round of technology firms that didn't pan out, McElroy said.
At the same, corporate spending has stalled, he said. Firms like Conita count
on a few large corporate customers to become early adopters of their technology
and provide an initial stream of revenue, McElroy said.
The overall economic recession, compounded by the Sept. 11 terrorist attacks,
made an already difficult market even tougher, he said.
"Technology startups have been hit twice as hard as the rest of the economy,"
McElroy said.
Barbara Rackes, who spent almost 20 years running a chain of clothing stores,
said she's never seen as dramatic a swing as her past five years in technology.
Rackes is chief executive of Columbia-based Syneractive, which builds Web sites
and develops software tools for building Web sites. Her staff has been cut in
half to 21 employees.
"You know it's the right thing to do ," Rackes said about the layoffs, "but
it's agonizing to do it in waves."
The technology market needed a shakeout, she said. The flood of failures,
though, brought down firms with a legitimate chance of making it, Rackes said.
"The whole venture capital cash world came crashing down, and it took everyone
with it," she said.
FOCUS SHIFTS
The focus for technology companies has shifted, Rackes said. Startups are
building a customer base while they hope for venture capital backing to kick in
later, she said.
"It's one at a time," Rackes said. "Just like the old bricks-and-mortars
method."
Dunn said VC3's ability to shift quickly to services that bring in revenue has
allowed his firm to get through the downturn.
VC3, based in Columbia, provides computer networking services and customer
software development. It also has developed a product called GovHost that moves
local government functions to the Internet.
VC3 has 38 employees after laying off three employees in the past year.
The company tried to raise venture capital during the heyday of the technology
market but major investors didn't bite, Dunn said.
The company's GovHost product, which was pitched as a source of growth, didn't
strike investors as a fast riser, Dunn said. Local governments, the target
market, were viewed as slow in adopting new technology, he said.
VC3's inability to raise venture capital turned out to be a stroke of good
luck, Dunn said.
When companies take on venture capital, they also turn over control, he said.
The venture capitalists often make the decisions, aggressively pushing the
company's potential home run product, Dunn said.
By not landing venture capital, Dunn still has control of VC3. When the market
turned, VC3 quit pushing GovHost so hard and started looking for paying
computer and software services contracts, he said.
"Right now, we're in a mode of focusing on making a profit from month to
month," Dunn said. "We're watching the cash flow."
University of South Carolina economist Doug Woodward said the mind-set in the
market has changed but small technology companies remain the best bet for rapid
growth.
Many of the young technology firms were bound to fail in the past 1