The 19^th annual ETRE conference ended lastThursday night in the same atmosphere of uncertainty that has enveloped theglobe in the last several months. The 300 attendees in Stockholm heard both outrightbravado and undisguised fear in conversations overshadowed by the world financialcrisis and speculation about how deeply it will affect the world of technology.

The most unabashed optimist at the conference, a Red Herringevent, had to be Tim Draper, managing partner of Silicon Valley VC powerhouseDraper Fisher Jurvetson. Mr. Draper (photo)delivered an impassioned defense of freemarkets and deregulation, arguing that the biggest mistake developed countriescould make now would be to tighten regulations too much, especially on startupsand on companies trying to list on stock exchanges. He and a number of otherspeakers attributed the dearth of IPOs recently to the fact that the SarbanesOxley requirements imposed after the dot-com crash of 2000 have finally takenhold. Unless those rules are loosened, he warned, companies are likely to turnto alternate markets like the AIM and the Hong Kong stock exchange for listing.

Armed with a PowerPoint presentation showing the advantages of free marketsover highly-regulated ones, Mr. Draper said a $5,000 investment in T-billswould be worth $10,000 after 20 years versus $17,000 if invested in stocks and$150,000 if invested in venture capital.

Giles McNamee, managing director of McNamee Lawrence & Co, a boutique investment bank based in Boston, expressed hope that the venturecapital sector would not be affected much by the financial turmoil because “it existsin its own universe.”  Mr. McNamee notedthat except during the dot-com bubble, on average just four tech companiessuccessfully completed an IPO each year. Most exits, he said, occurred viatrade sales or acquisitions. He noted that many of the large players in thetech field, including SAP, Microsoft, and Oracle, were flush with cash that couldbe used even during a recession, to acquire companies with the technology andpeople they need.  In recent weeks, hesaid, both Microsoft’s Steve Ballmer and Oracle’s Larry Ellison have indicatedthey will increase their M&A activities in the coming months. He conceded that venture firms trying to raise funds now may have the mnost difficult time.

Other speakers at the conference argued that techcompanies would probably face tough times in the coming months – or years. In apanel on where to invest in tough times, some venture capitalists suggestedthat startups that produce compliance software would probably benefit fromhelping companies meet new regulatory requirements that are likely to beimposed in the coming years.

Another area where investment will continue to be vigorousis greentech, said Gianni Operto, investment director of Good Energies, a Zug,Switzerland venture firm focused on alternative energies. Igor Sill, founderand president of GenevaGroup International, which recruits top executives for startups, predicted that significanttechnological advances in battery technology and wind power will continue todraw investments even during the downturn.

Some participants at ETRE saw a bright future forentertainment because consumers have continued to spend on games, videos andmusic even when times were tough. Members of a panel on the music industry saidthey were beginning to see a change in consumer attitudes toward illegaldownloads, especially because the music industry was beginning to offerattractive alternatives in addition to Apple’s iTunes.

However, in the conference’s final discussion, venturecapitalists urged startups to prepare for difficult times. They predicted thatVC firms were likely to decide more quickly to jettison companies that they didn’tthink had a future. And they also said that startups would find it more difficultto raise new funds. They advised entrepreneurs to bring their burn rates downas far as they could and to gird themselves for a tough couple of years.