When talking to the founders of early-stage founders, I hear a common message: it's nearly impossible to raise venture capital. Basically, the VC world is in "hunker-down" mode because of the slowing economy as well as the dearth of IPOs and M&A deals (there were only six VC-backed IPOs last year). True, VCs are supposed to take a long-term view – but human emotions usually dominate during times of uncertainty. Hey, just look at what happened during the dot-com bust.
Well, according to a piece in Bloomberg.com, it looks like VC firms are in the process of giving some grim advice to their portfolio companies. Just look at Redpoint Ventures, which invested in standout deals like MySpace.
The firm wants its companies to cut staff by as much as 10%. The main reason is that capital has dried up – so early-stage ventures need to find ways to stretch their dollars.
Besides headcount cuts, Redpoint wants to see restraint with budgets, such as with R&D and marketing. Instead, there must be a revenue justification for major expenses (and the revenue has to come fast).
It's tough stuff but necessary. Unfortunately, it will probably mean less innovation in the US economy. But, then again, this is what usually happens in a protracted recession.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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