Comments on: How Does The Market Craziness Affect Venture Capitalists and Startups?

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By: dan_osit8519

dan_osit8519 — Fri, 31 Jul 2009 02:20:11 +0000

excellent advice jayjay!

By: jason4307

jason4307 — Fri, 31 Jul 2009 02:20:11 +0000

I hope that you are correct – sincerely, but if the past is any indication of the future, my bet is big slowdown in that part of the ecosystem.

By: jrr2ok

jrr2ok — Fri, 31 Jul 2009 02:20:11 +0000

Just to play Devil's advocate, Jason, I'm not entirely convinced that angels will go away. I think that such a phenomenon has much more to do with the portion of their overall investment outlay tied up in rather than the nature of the market. If anything, a downturn could be seen by savvy angels as a time to buy good solid ideas with long term futures. If they can preserve their burn and go positive before conditions change, so much the better.

As much as I do believe that many investors will run scared, I believe even more strongly that a few months to a year of sub-par returns will renew their will. After all, chasing returns in a low-return environment arguably provided the catalyst for our current mess.

By: jason4307

jason4307 — Fri, 31 Jul 2009 02:20:11 +0000

Remember, VCs don’t get all their money up front. They have commitments from their investors to give them money in the future, so the money isn’t lying around doing nothing, rather the money is still in the banks of the investors. There are not funds to “freeze” rather the question is whether or not they will just stop investing because of the current market and not call those funds from their investors. We’ll see, but if history is a guide, my guess is that fundings decrease.

By: Mike Puchol

Mike Puchol — Fri, 31 Jul 2009 02:20:11 +0000

It could well be, but the situation isn't the same as 2000-2001, we don't see many VCs with two or three-digit million amounts invested, and companies are much more efficient and can run on fumes for longer.

My question would be – there are plenty of funds (VC) that are only part-invested, what happens to those funds? Does it make sense to have them laying around not providing any potential for returns? VCs will be much more careful about throwing a million bucks at a PowerPoint for the next social network, and will look for solid teams, products well into development, and a credible path to profitability – but I don't think it would make sense for them to just freeze the funds.

By: Tom_Miller

Tom_Miller — Fri, 31 Jul 2009 02:20:11 +0000

All great points Jason. I may add one silver lining that we have observed, especially for early stage companies (development / research stage). That is, development dollars go further today than they have in the past several years, both domestically and internationally. In short, a company should be able to get further on that recently completed A round than prior projections show. This puts well funded early stage companies in the driver seat and ultimately mutes the volatility observed in today's crazy markets.