Some of the top venture capitalists, including Sequoia and Benchmark, are warning of looming problems for start-ups. In fact, we are already seeing layoffs at some VC-backed companies, such as Zillow and AdBrite.
The new mantra is: cut costs and get to profitability -- and fast.
I think it's good advice, whether your company is seeking venture capital or not.
It should also be no surprise that there has been a downtrend in VC fundings lately. A report from PricewaterhouseCoopers and the National Venture Capital Association shows that there was $7.1 billion in VC investment in Q3, a 7% drop from Q2.
It's a good bet that the decline will continue. Basically, the IPO market is dead and M&A activity is fairly slow, making it difficult for VCs to get returns.
So does this mean you should forget about VC funding? Not necessarily. No doubt, the market is still large and VCs continue to find opportunities, especially at lower valuations.
However, it's critical that a company meet the tough criteria that VCs look for:
- Large market opportunities: a size of at least $1 billion.
- Poised for super-fast growth: this would be revenue growth of 100%+ per year.
- Proprietary technology that has strong barriers: An example is Google (NASDAQ: GOOG), which has extremely powerful technologies (such as its PageRank system)
- Veteran management team: that has a history of building growth companies.
However, the fact is that only a few companies meet such standards. Keep in mind that a typical VC will fund a mere 1% (or lower) of the deals that are reviewed.
In other words, it's important to be realistic about your company. If you do not have the typical characteristics, you'll be wasting your time chasing VCs. And, in the current tough economic environment, time is something you definitely don't want to waste.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
10-27-2008 @ 4:42AM
andy abraham said...
We have speaking on myinvestorsplace.com that possibly the conditions we are in will make it more feasible fund startups...
1. More people being fired and need to start something
2. Less investors willing to invest
3. Web businesses can be started very cheaply...
what do you think...are the members of myinvestorsplace.com and myself missing something...thanks
10-27-2008 @ 8:14AM
wes said...
I'm an inventor with a new protected idea and looking for someone who knows how to start a company. Any takers?
10-27-2008 @ 9:40AM
Rich said...
To the inventor or anyone looking for capital on their project. The money is out there. Go to globalstarcapital.com. Their founder has 17 years in the business and properly prepares projects for the attraction of real lenders.
10-28-2008 @ 9:07PM
Mike C said...
Wes
I would start here http://www.sba.gov/
Starting a business is easy. Selling a product or an idea, that is a little tougher. Best of luck.
11-06-2008 @ 7:58AM
MANISH said...
I am looking for a funding partner for setting up a Matrimonial Company in New Delhi, India. It would be initially a single location identity and would expand once the name and systems are established in one place. It is long term profitable business and has to potential to assume large volume. Project size would depend upon the investment available, with the minimum investment being Rs. 1.00 Cr (USD 250 K).
If interested, we can take matters further after final discussions.
Regards.
Manish
singlesonline@gmail.com
+91 9811153104