(photo via SushiFugu@flickr)

Despite living and breathing business every day, I’ve never been one to be swayed much by how the market is moving. Yes, lots of folks are seeing their portfolios down (again) in the markets today, and no one every likes to see the public markets in turmoil, but I think environments like this can actually benefit Southern California’s technology businesses.

1. When things are bad, new opportunities come about. The best new companies come about when there is change, when there is a shift in behavior, in markets, in the dominance of market leaders, and even from down markets. This is particularly true in the area of Internet — consumer internet, software-as-a-service, and so on — where the move to digital is providing better service and functionality, new capabilities, all more efficiently and cheaply. Down markets more quickly drive both consumers and companies to adopt new solutions which can save them money, or which help them survive the economy.

2. SoCal entrepreneurs have a huge amount of experience with these types of markets. The last generation of Southern California entrepeneurs grew up in these types of markets. Pretty much every big exit out of Southern California after the dot com bust came from entrepreneurs who had to figure out how to thrive, despite a crappy economy, lack of capital, and consumer behavior. Companies like Green Dot, LowerMyBills.com, PriceGrabber.com, and others thrived and appeared solely because of the Dot Com bust, from people wanting to save money, not being able to access credit, and other economic issues. Those issues continue to come up anytime the market takes a dip.

3. Real businesses, and cash, wins over hype in lousy markets. Here’s an area where Southern California wins over the echo-chamber of Silicon Valley. When markets swoon, those firms delivering real financial results are suddenly a lot more interesting than the “next, hot, thing”. Unlike the firms who tend to be the darlings of Silicon Valley (and usually, the rest of the tech press) there are plenty of Southern California companies who have consistently delivered good financial results, but just don’t have the “sexy” factor. Soured markets tend to deliver investors to those better managed companies and not to the hyped consumer-brand names from Silicon Valley.

4. Private company investors take the longer view. Although they are affected by the market, investors in startups take a much longer view than your average investor. They’re committed to five, and even ten years into pretty much a nonliquid asset when they invest in startups, and ups and downs of the public markets — provided they’ve got their own limited partners supporting them — do not affect private venture and private equity investors quite as much as they seem to swing individuals and even investors in public companies. Yes, markets make a difference (particularly in exits) but they just need to see a good window to exit in the future sometime in the next few years, not months.

5. Market turmoil helps clear your market. One benefit which I think lots of Southern California firms benefited from in the last few downturns, is that market turmoil tends to clear out the tons of competitors in a market. Because of uncertainty in the market, if you are able to get funding and/or generate cash in your business, you can emerge on top with lots less competition than you might have seen in a boom market. This helped, I think, in many cases of generating much stronger companies out of the last bust then in boom times. I know at least a few private investors (and myself) who think that the best companies actually emerge out of the worse public markets and crappy economy (Green Dot is a good example of this…).

Yes, you can’t ignore the mood and sentiment of the public markets, or your portfolio, but I think a certain separation from the drama of the market also helps, and it’s clear that lousy markets have helped Southern California’s last generation of technology firms.

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Technology by Benjamin Kuo