Brace for impact
June 14, 2013 2 Comments
This post has been on the oven for a few months. I think it still makes sense
As most have noticed, the funding market has, recently, become much tighter and choppier. There are significant market holes in almost all stages:
- Structured Angel rounds dried up
- There are only 3-4 active series A investors, investing at a much slower pace than in years before
- International VCs that were mostly picking up the larger Series B checks, have almost all pulled out
Said like this, it may sound as a catastrophic scenario for the community but I’m not so sure it is.
The slowdown in rhythm will let us learn and mature before blowing through too much Money.
This also shakes out the people that were in it for the “ free option” of being and entrepreneur, ensuring that the ones left are in for the long run.
Additionally, we open space for new funds to emerge and snap up good companies, as the older ones are not sucking in all the deals. Of course some of these new funds have been created by people that saw the frenzy of prior years and thought that they couldn’t sit out.
While some of these are opportunistic, don’t really understand VC, some others will prove to be good investors and increase diversity in the Market.
Also, the Series B crunch will make experienced entrepreneurs comeback into the fold. To create new startups after some of these companies fail, starting to solve one of the community’s biggest issue, experienced entrepreneurs.
Despite the positive effects that this moment might have on the community, we all want to avoid the harsher sides of the funding crunch. Therefore I’d suggest to entrepreneurs.
- Seed Stage – Build! It is very unlikely that you will get funded without a product. Powerpoint startups are, for the vast majority, a thing of the past. Get a product together, ship, and learn!
- Others – Brace for impact – No matter how confident you are that you can raise the next round, have a break-even plan ready.
- Know what are the measures you will take to make your company break-even, how much cash you will need to implement it and what are the triggers to start working at it. Review it frequently and be ready to go for it if you hit the triggers.
All of these might be painful, but will certainly make us a more robust start-up community.