On Wall Street “there was suddenly no more appetite for growth companies,” said Eric Buatois, a general partner in Sofinnova Ventures, an early-stage investment firm that backed the start-up.
Upek is profitable already, but without the cash infusion from the offering, Mr. Buatois said, it will delay new products, limit the number of projects it takes on and hire less aggressively.
“You shrink your expansion plans,” Mr. Buatois said.
Upek has 30 employees in California and another 80 or so worldwide; it has manufacturing in Singapore, hardware development in Italy and software development in Prague. It also does 80 percent of its sales overseas.
Upek’s global nature, which is shared by a growing number of start-ups in Silicon Valley, is cutting both ways in the economic downturn. On the positive side, the overseas sales are insulating the company from some of the tough economic conditions in the United States.
However, because it has workers outside the country, it is paying a hefty and unexpected price as a result of the dollar’s decline.
“The biggest impact is the free fall of the dollar,” Mr. Buatois said. He said costs to the company have risen 10 percent to 20 percent in the last three quarters. “But the price of the product is not going up.”
The withering national economy also appears to be having an impact on the amount of money that early-stage investors are putting into start-ups.
In 2007, very early-stage investors — so-called angels — put $26 billion into start-ups, according to the Center for Venture Research at the University of New Hampshire. That figure represents no increase from the year before, after large increases every year since 2003, when the Valley emerged from the bust.
“Since the climb back, this is the first flat year,” said Jeffrey Sohl, the center’s director. He said the money was being spread over more start-up companies, which means the average amount going into individual start-ups from angels has fallen to $450,000, from around $500,000.
“It’s not a crisis in confidence, but it is a more cautious approach,” Mr. Sohl said of the perspective of investors, whom he said may also have less to invest in new companies because the market’s decline has diminished their capital.
The caution is likely to hinder job growth. The Center for the Continuing Study of the California Economy projects there will be 10,000 new jobs in the region this year, down from 17,700 last year, and 25,000 in 2006
Another seemingly unrelated but potentially crucial financing issue has come from the paralysis in the market for so-called auction-rate securities. These are investments that individuals and companies have used to park money for short periods, with the knowledge that they could quickly retrieve the funds. Many venture capitalists have relied on such investments but are finding they are unable to get their money out, which in turn is threatening their ability to pay bills at their start-ups.
But the most troubling specter for the tech economy has been the stalled stock market and the impact it has had on the ability of investors and entrepreneurs to go public for personal profit and to raise money to continue to build their businesses.
At the end of the fourth quarter, there were 60 venture capital-backed companies registered to go public. By the end of the first quarter, 38 were registered. And some of those have since withdrawn their registrations, said Mark G. Heesen, president of the National Venture Capital Association.
“That’s how quickly it turned,” Mr. Heesen said, adding: “It is not good news, and we are not trying to sugarcoat it at all.”
There is a trickle-down impact, he said. “For Silicon Valley, it means fewer start-ups funded, fewer entrepreneurs funded, fewer employers that you hope to be the next major employer.”