The downturn sure is making for interesting times. Here at FoG it started with the gloom of the Sequoia meeting notes and presentation of doom. Followed by the more upbeat link to Paul Graham's essay on "Why to Start a Startup in a Bad Economy."
Interesting times. And I have a pretty interesting job. A job that allows me to interact with lots of investor types. Individual angels, angel groups, angel funds, venture capitalists, venture bankers. And they don't mind telling me whats on their mind because at the moment I am somewhat like Switzerland (Entrepreneurs do the same thing BTW). Last week at Venture Atlanta and Meet the VC I had a chance to talk with a lot of investors over a brief period of time. And while I hesitate to quote anyone directly I can summarize what I learned over the past week.
Angels A Mixed Bunch
Some are frozen into inaction. Some, but not many, continue business as usual. The latter are being more selective. Asset allocations are being closely watched. Which is closely tied to the broader stock market. Many angles have to allocate more money for follow on. Overall not good for early stage.
VCs Intend To Keep Investing
This message is loud and clear. VCs have lots of money. Sitting in cash. They intend to invest it. They also will be more selective. Either gravitating towards later stage deals to shorten their exit horizon or doing less deals as the need to keep funds available for follow on increases. Also not good for early stage.
Business models will drive interest. Advertising is out. Platforms, analytics, and cost savings are in.
With that said some deals that would have been consummated fours weeks ago are not getting done today. I personally know of several. VCs are pulling back to conserve their funds for what they believe to be higher probability deals that can make it through the startup winter.
VCs are looking to help extend the cash runways of their deals by cutting costs. They want their companies to get more conservative. They are advising their companies to draw down their credit lines.
Startups are heeding this advice. TechCrunch offered up a layoff tracker. To date it is showing 3,689 laid off employees at 22 companies. Back out the more established eBay and Yahoo and you get 689 employees at 20 companies. Startup CEOs are acting, and acting fast.
In an interesting side note DLA Piper released its "Technology Leaders Forecast Survey" this week. Conducted in late September and early October, the survey shows 47% of VCs believing that the financial crisis will adversely impact the tech industry while 33% of technology company executives (not just early stage) believe this is the case. Based what I have seen and heard in the past four weeks both parties are acting a bit counter to how they responded a month ago.
Some Key Quotes
"I'm getting a deal done."
"You will see a flight to quality."
"I am looking for a real entrepreneurial spirit. Someone who can efficiently get to revenues and profits."
Like the broader economic climate, times are not good in the technology startup world. But deals are going to get done. Good deals. With smart entrepreneurs. Helping each other to achieve a dream.
It will take longer. It will make a hard task even harder. But deals will get done. If you are an entrepreneur you need to adjust to the new realities of our times and go find yours.