Early this year, I was on a panel of VCs, where we talked about the environment for startup entrepreneurs. I was kind of an outcast since I was the only one expressing negative sentiments. Basically, I thought the credit crunch would spillover into the techworld.
To me, it seemed like common sense. After all, if the economy falters, then Corporate America is likely to make cutbacks in information technologies and advertising. Well, it looks like things are indeed unwinding. In fact, Sequoia Capital recently gave a presentation to its limited partners that was entitled "R.I.P. Good Times." Essentially, the message was mostly grim.
What's more, researches at the University of San Francisco published a study that indicates that VC confidence is sliding -- reaching its lowest point since the index was established (back in 2004). Keep in mind that it has reached a new low for the past four quarters.
The irony is that many VCs will likely hold back investments because of the fear factor. Simply put, the IPO market is dead and M&A is lackluster.
But the indecisiveness can be a big mistake. After all, VCs should invest for the long-haul and not be concerned about temporary instability. Actually, with less competition, startups should have some advantage when they start to launch their products and get customer uptake.
Moreover, if you look at historical returns for alternative investments, it's often tough times that provide the biggest opportunities. Yet, oftentimes it's natural human instinct that takes over -- and separates the real investors from the wannabes.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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