Chad Waite (Photo courtesy of OVP)

OVP Venture Partners managing director Chad Waite has certainly accumulated his share of battle scars over more than two decades in the venture business. But nothing quite compares to what he's seeing right now.

"I wasn't alive in 1929," says Waite when asked if there are any economic comparisons to what's occurring today. "It is just multiple dimensions. You'd go through times when people are just scared to invest, but you'd always have the belief that if you had a good project with a good product and a good operating history you could finance a company. And I don't know if that's true today."

Whoa. Waite has never shied away from a strong opinion. But in a business where optimism typically rules the day, the seasoned venture capitalist's downbeat message proves that the economic hole is very, very deep.

"You've got five or six different things converging at the same time, which makes it very difficult," he said.

Navigating the current morass can be especially challenging for startup companies, many of which are years away from turning a profit. 

And it is taking a toll on the venture capitalist themselves, some of whom can't draw capital from the large banks, pension funds or endowments that provide cash to VCs. (OVP has not encountered this problem, Waite said). 

For those companies trying to survive, the 26-year-old venture firm is offering a tough spoonful of economic medicine.

--Cut your burn rate.

--Renegotiate deal terms with service providers.

--And manage your venture round like its your last.

"It is going to be a hard year," concedes OVP's Lucinda Stewart. 

In what might be the catchphrase of the year in the venture business, Stewart notes that "flat is the new up."

"You don't have to double your revenue to make us happy," she says.

Times have certainly changed. But it's not all doom and gloom at OVP, which continues to invest capital in new companies such as Energ2, Napera Networks and others. At a recent partner meeting at the firm's Kirkland offices, nearly all of the venture capitalists raised their hands when asked about new deals they are working on.

"Despite the doom and gloom, we are still writing checks," said Waite. 

OVP's Gerry Langeler, for one, is taking the "glass half full" approach. He notes that it's a good time to start a company, in part because of limited competition and the availability of smart people to pursue new ideas.

And he cites the historical record that some big tech companies were founded during troubled economic times.

"If we invest today in a company -- and almost everything we do is really early startup stuff -- we are looking for liquidity in 2015," said Langeler. "If we are still having problems in this economy in 2015, we are all in big trouble." 

But that doesn' t solve the problems for companies which raised first rounds two or three years ago, which now need extra capital to build the business. Those startups are in a bit of a bind, with Stewart noting that some of them are being shopped at attractive valuations. OVP hasn't bit on one of those later-stage offerings, but it is looking as prices drop.

OVP raised a $250 million venture fund in early 2007, with about $100 million of that cash left. It has made 20 investments from that fund with plans to make as many as 10 more before it heads out for additional capital in 2011. 

It is too early to judge the performance of that fund, but OVP (like other VCs) certainly will need the IPO and M&A markets to improve if it wants to start showing positive results. (As of last September, both OVP VI and OVP VII were showing negative internal rates of returns in the double digits.) 

Asked about the exit market, Waite says bluntly "there isn't one."

"There is absolutely no public market and there hasn't been for venture-backed companies since 1999," said Waite. "There's bits and drabs and pieces and bits and whatever, but the implementation of Sarbanes Oxley has been awful with the consideration of small companies."

Because there is no way for a company to go public these days, Waite said that limits the options when a potential acquirer comes along.

"The only way in which to get an exit is to get Cisco or Amazon to buy you. And when there is no alternative, what do they do? They say: 'Here is the price," said Waite. "Unless you have a company that is really strategically applicable to four or five different players, it is really hard to get any kind of bidding going."

So what's it going to take to jumpstart the economy? Waite calls Thomas Friedman's idea to pump billions of dollars into the venture business "pure and utter lunacy," noting there's way too much money already available.  

Focusing on the innovation economy is the right thesis, but Waite says the tax policy needs to change as do immigration laws and the education system. As it relates to taxes, Waite said the government needs to differentiate between venture capitalists -- who bankroll new ideas -- and hedge fund and private equity investors -- who tend to manipulate financial markets.

"We don't play games with numbers. We take a gal, a guy and a dog in a garage and start a company around it," said Waite. "If you look back, the NVCA numbers don't lie. A huge amount of the U.S. economy -- our GDP -- is based upon companies that didn't exist 30 years ago. And their foundation and roots were in people in our community who started them, or at least provided the capital to fuel them."