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Summary:

[qi:011] The crisis in the financial market is coming home to roost for startups of all kinds. Today’s Wall Street Journal has an article detailing the death or firesale of several startups in the last few weeks. It’s grim, but this is only the beginning for […]

[qi:011] The crisis in the financial market is coming home to roost for startups of all kinds. Today’s Wall Street Journal has an article detailing the death or firesale of several startups in the last few weeks. It’s grim, but this is only the beginning for many venture-backed companies, as we reported back in October. Over the next few months, we’ll see continuing news of businesses giving up the ghost as their venture backers take a hard look at upcoming cash needs and decide to prune.

As Fred Wang at Trinity Ventures told me back then, it is a matter of figuring out which firms can make the best use of the remaining money in a fund, weighed against the portfolio company’s cash needs.

“It’s a little bit like poker in the sense that if the company is not burning a lot of capital and the cost of buying a card is low, it’s a little bit easier,” Wang says. “If $1 million buys them another 12 months that’s easy to call, but if the cost of a card is $5 million to $10 million then it’s a lot harder.”

Venture capital is a cyclical business that follows the fate of the stock market, so it depends on where a startup is as the cycle turns from boom to bust. Unfortunately, many of these unlucky startups are getting crushed under the wheel as it rolls through the downturn. Right now is a good time to work on an idea, but a bad time to be selling things.

However, innovation won’t just stop.VCs are still making selective investments in early stage startups at newly reasonable valuations, hoping those deals are ripe by the time the economy reaches the next boom.

  1. Patric Carlsson Thursday, February 12, 2009

    Thank you for the good source of information. I can only agree. We here at Gerbsman Partners keep seeing an ever increasing volume of requests for M&A´s etc. See more at http://boic.wordpress.com

  2. Calacanis wrote a great piece on “Plan B”

    “When the market is down, it’s a great time to get your team educated and to the next level. Invest in
    training and education of your top people, because they are the ones who will lead your company through this mess… One of the best things to do in the down market is build marketshare. Look for competitors that are going out of business and buy them or just “steal” their clients and talent… ”

    http://calacanis.com/2008/09/29/the-startup-depression/

  3. The Venture Industry Needs to Slash Its Investments Friday, February 13, 2009

    [...] wrote yesterday about the triage beginning in the venture industry, and today I chatted with Fred Wang, a general partner at Trinity Ventures, a $300 million fund [...]

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