The pullback in business spending and venture capital investing will winnow the field of startups, Microsoft CEO Steve Ballmer in an May 6 speech at Stanford University. But “there’s really not a better time to start a business” in industries dependent on new technology, including energy production, environmental science, and computer interfaces, he said.

“There’s still, in my opinion, more venture capital than there are good ideas to support the venture capital,” Ballmer said in a speech to Stanford students studying entrepreneurship as part of the school’s “Entrepreneurial Thought Leaders” series. As the worldwide economy contracts, fewer mediocre business ideas will get funded, he said. That will result in a healthier startup environment than exists now, when “too many companies can hang on for almost too long with too much money.”

Advances in computer hardware and software are creating opportunities for startups in cloud computing; new ways of programming and interacting with PCs that resemble human language; and fields like oil and gas exploration, alternative energy production, and pharmaceutical research that depend on sophisticated computer models of the physical world. “Software accelerates the process,” Ballmer said`.

Yet a freeze in VC investment is constraining the ability of startup companies to bank as much cash as in the past.

VCs invested just $3 billion in startups during the first quarter of 2009, down 47% from the fourth quarter, according to the National Venture Capital Association. It was the lowest amount of investment since 1997.

Ballmer cautioned the Stanford students that despite the chance to build new companies in emerging fields, the contracting economy likely won’t spring back to its former size. That will mean less venture capital and less money spent by consumers and businesses on products. “Let’s start with the basics: It really is a bad economy,” he said. The world economy is “resetting” over a two-year period or more, and “then we’ll rebuild from a lower base … All the extra debt is going to get flushed out of the system, and it won’t be replaced.”

Microsoft’s CEO also reminded students that great businesses often take 10 years or more to reach fruition, citing Microsoft’s Windows operating system, Oracle’s database software, and Google’s search engine.

Ballmer advised the students that knowing some science, the “language of business,” and having the ability to manage creative people were keys to his success -- despite a paucity of formal business experience. Recalling his early days at Microsoft when he went to work for founder Bill Gates with a year of Stanford’s graduate business school and some experience at Procter & Gamble under his belt, Ballmer said: “All I’d ever done was interview for jobs and market brownie mix.”

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