How VCs Adjust to a Bad Economic Climate

This market environment is bad.  Bad for everyone.  Not just this guy Sumner Redstone (I'm sorry but if you're named Sumner do you deserve to be a billionaire?).

I think it's also bad for entreprenuers.  I don't care what my hero what Paul Graham says.  Bad market environments mean the bar is higher and the margin for error reduced.  VCs begin to behave as if they're investing their own money.  Angel investors suddenly remember it is their own money.  Companies are less receptive to business development deals and partnerships (unless they can be justified on a cost-basis/improve the bottom line).  Exit opportunities shrink.  Acquirors don't have as much cash burning a hole in their pocket.  When an opportunity to exit does appear, acquirors care much more about price, driving your r.  The so called benefits (increase in the availability of talent, less competition, the necessity to forge your company in the crucible of bad times) don't make up for these drawbacks.

VCs adjust to this market.  And quickly.  They leverage the reduced demand for deals to drive down valuations.  They invest in later stage deals and reduce the number of seed stage deals.  Revenue and profitability (or a path thereto) are pivotal.  Because exit opportunities are reduced, venture capitalists reserve more capital for follow on rounds in existing portfolio companies.  This means they invest in fewer companies.  What a bunch of sheep.

Of course, life is short.  And big companies generally suck.  Do quit your job and start a company today.  Ian just did.

Come talk  to the Connectors Group, we'll help.  Or submit your business idea to Shot Put Ventures.