The Rise and Fall of Venture Capital
April 19, 2009
Last Friday there was a fair amount of noise made over the most recent “MoneyTree” Report showing a year over year decline of 47% in VC dollars invested in the Fourth Quarter, including this article in the New York Times.
Fred Wilson has a post digging into the numbers, suggesting most of the decline came from the Clean Tech sector, and the Silicon Valley region.
I haven’t spent the time to study the numbers, and don’t plan to. However, speaking from my own perspective, I actually am quite pleasantly surprised by the number of high quality entrepreneurs pitching high quality ideas since the beginning of 2009. In fact, I’d say I’ve seen more genuinely backable pitches over the last few months than during any earlier time. So while the total amount of VC invested has been declining and probably will continue to decline, I would wager that the number of high quality VC opportunities is as high as ever. Though, of course, we will have to wait 4-5 years to find out if that is true.
I second the notion of higher-quality entrepreneurs / ideas in Q1 2009. We’ve seen some great businesses already in these first few months of the year.
I am an entrepreneur and I agree that it seems hard to get investors these days. I think I have a quality venture, but am having a heck of a time getting anyone to even take a look. Perhaps you have time? Check out http://tr.im/jY3x
The trend is quite evident from the facts presented. Venture capital investors are looking for multiple projects with small capital requirements than big businesses with huge investments. This is not too surprising in the macro environment that we are presently in. The companies which usually require heavy capital outlay such as telecom and networking have seen significant declines. The overall scenario, as I understand, has not turned out to be as gloomy as initially feared to be. This is good news for entrepreneurs. The focus now should be to seek small investments in businesses with quick break-even and positive cash flows. It is necessary for the entrepreneurs to be as clear as a crystal about the financial needs and future financial condition of their business. Translating their plans into numbers in the form of a financial model could be a great way of impressing the investors. I have found very interesting posts about financial models related to various businesses at http://www.financialmodel.net
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