Start-ups tread cautious economic pathway

— -- As the signs of a recession increase, start-ups and their venture capital backers aren't panicking. But they've learned the harsh lessons of the great dot-com crash of 2001, and they're girding to endure some economic pain.

Look at World Golf Tour (www.worldgolftour.com), a 2-year-old San Francisco start-up that offers online golfing and photography-based animations of famed golf courses around the globe.

Launched on credit cards by tech industry veterans YuChiang Cheng, Chad Nelson and JF Prata, the start-up quickly attracted "angel" investors, Battery Ventures and Panorama Capital, who've poured several million dollars into the firm.

With the economy flagging, conservative CEO Cheng is trimming costs further. He's hired 20 employees but outsources other work abroad. He's signed an affordable, short-term sublease in a San Francisco law office. He spends little on advertising, relying on viral marketing through blogs and message boards.

"As an entrepreneur," Cheng says, "your biggest worry is running out of money before you get your idea to the market. So saving a dollar buys you time."

World Golf Tour and scores of other U.S. start-ups are doing well now, although they could be vulnerable if a big recession hits. While start-ups are the research-and-innovation hubs of the business world, they don't enjoy the financial resources of large companies during long-lasting downturns.

"We're all trying to size up the storm," says Chris Pacitti, general partner at Austin Ventures in Austin. "An extended recession can have a pretty dramatic effect on a small, fragile company."

One danger sign: The market for initial public offerings — private firms going public by selling their shares in the stock market — has swooned. That means start-ups will find it harder to raise money, and big corporations will have less capital to buy young companies.

Renaissance Capital's Renaissance IPO index fell 20% through March 31. And only five venture-backed firms went public last quarter, says Mark Heesen, president of the National Venture Capital Association.