The VC Funding Landscape for Start-ups
Start-ups and entrepreneurs have all seen the news… heard the stories… felt the pinch. As the financial markets have shuddered and lurched, VCs have tightened their purse strings.
This climate was first given voice when Sequoia’s “R.I.P. Good Times” presentation spread through office parks in the Bay Area, Silicon Alley, Boston and everywhere in between. The presentation (worth a read, if you haven’t yet seen it) paints a bleak short- and long-term economic picture.
More recently, TechCrunch shares that the National Venture Capitalist Assocation and PriceWaterhouseCoopers reported just how much the VC market tightened in Q4. The total amount of VC financing in the 4th quarter was down 33 percent year-over-year, and down 26 percent quarter-over-quarter. For the entire 2008 year, the total amount VCs invested into startups was $28.3 billion, down 8 percent.
VentureBeat recently highlighted a survey of 400+ VCs that reaffirmed just how slow 2009 will be for VCs — and how tough it may be for start-ups to raise fresh capital. The good news? These same VCs believe that markets will loosen in 2010, and anticipate they will actually fund the same number of deals in ’09 as they did in ’08 (albeit at a smaller average deal size).
A majority of the VCs said they expect to fund the same number of companies or more, so the bigger effect may not be on the number of fundings, but on the amount each startup can raise.
This means that some start-ups will find funding, although the average deal size and valuation will almost certainly be lower. In these difficult times, it’s more critical for entrepreneurs to control their costs — particulary their fixed cost structure — and still find ways to innovate. Getting new products and versions to market more quickly, and outrunning the competition (who have their own concerns and challenges, by the way) will be more important than ever.
How is your firm striking the balance between cost containment and getting groundbreaking apps to market quickly? Drop us a comment and share your thoughts.
