RICHARDSON, Texas -- The venture capitalists here definitely don't mince words when describing the economy.

“Today, things suck,” says Matt Blanton, the CEO of Startech Early Ventures. That’s why this year Startech retooled its business model in order to concentrate on finding and funding optical and telecom winners.

“The early-stage funding market is like any other, and we're adapting as needed,” Blanton explains.

The Richardson Chamber of Commerce originally hatched Startech in 1997. Its goal was to turn good ideas into startups and, working with a network of Texas venture capitalists, to turn those startups into big companies.

The ambitious project also tried to fertilize the startup landscape by educating entrepreneurs on how to deal with VCs and holding mini-conferences focused on the problems and opportunities in specific telecom and tech sectors.

Now that the go-go economy has seized up, Startech is shrewdly spinning off its educational unit into a non-profit foundation, headed by Sejal Desai. Desai says that, as a non-profit, Startech Foundation can now qualify for different kinds of financing, such as university grants.

The other part of the incubator, now known as Startech Early Ventures, is still focused on hatching startups. A network of stakeholders, which include Ericsson AB (Nasdaq: ERICY), Nortel Networks Corp. (NYSE/Toronto: NT), Alcatel SA (NYSE: ALA; Paris: CGEP:PA), and the area’s largest telecom and Internet outfits, will keep Startech Early Ventures funded.

Startech will also continue to manage two seed funds totaling $36 million, raised with the help of over 35 venture capitalists in and out of state (see StarTech Announces $31M Seed Fund). Nine of the 18 firms Startech has seeded have at least reached their Series A funding round and, combined, have attracted more than $375 million in additional venture capital investments.

Startech typically provides between $100,000 and $900,000 as seed funding, which allows the company founders to quit their day-jobs and start product development.

Companies funded by Startech include: LaserComm Inc., Xtera Communications Inc., Chorum Technologies Inc., and IPCell (now part of Cisco Systems Inc.).

Almost as important as its seed capital is Startech’s connections with the area’s biggest checkbooks and technical heavyweights. Blanton, a former lab manager at Convex Computer, once worked with another local gaggle of Convex veterans: the top managers at Center Point Venture Partners.

Former Startech board member Gary Slagel serves as the CEO of TeleCentric (a Startech portfolio company) and he’s been the mayor of Richardson since 1991. Sevin Rosen Funds partner Jon Bayless is Xtera’s CEO and one of Chorum’s largest shareholders. Bayless helped fund Ciena Corp. (Nasdaq: CIEN) and was one of Monterey Networks’ early backers.

The network here in the Texas Telecom Corridor will be crucial as Blanton and Desai attempt to keep startup culture from withering in the heat of the tech sector’s flame-outs. Indeed, Startech is hoping to harvest startups at a time when big, stable optical and telecom firms are culling their ranks and laying off thousands.

Desai sees the murky economic picture as a bright opportunity for Startech. “With all the recent layoffs, there are more talented people in the marketplace. That means there are more ideas and many available entrepreneurs.”

“The mental outlook here is slowly starting to change,” Blanton says. “People are recognizing that it's not bad to start a small business. Kleiner Perkins Caufield & Byers once invested in one of my companies [Vadis Inc.]. Sure, it failed... but I'm still alive.”

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com