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The New Funding Reality
With all the capital that has poured into
venture funds over the past two years, why
are investors not clamoring to fund new deals?
Investors, both angel and VC, are sitting on
the side lines, waiting and watching.
What are they waiting for? Good question.
The destruction of the past 12 months has
left everyone a bit dazed and confused.
The reality of the situation is that the VCs
still have a substantial amount of capital
that they have to invest. There are a few
additional realities that entrepreneurs have
to live with in today's tough climate:
1) No sense of urgency. The last two years
investors ran after deals like it was the end
of the world. The fear was that if a VC did
not decide and jump on a deal, it would be
gone forever. In the new reality, investors
know that they can say "come back in a month
or two", because they know the deal will
still be on the table.
2) You want to do due diligence? The notion
of deals getting done in two weeks on a napkin
and a handshake are over. Investors are back
to spending time with the management,
questioning projections, and actually doing
due diligence.
3) Real business. The most important reality
is that you have to have a real business,
that can generate real revenue, and believe
it or not - profits. Gone are the days of every
company "dot com" getting funded no matter
if they had a business model are not.
The staff at FundingPost.com believes that these
changes are for the better. It is forcing companies
to take a hard look at their business models and
is forcing them to generate revenue.
The new reality will make entrepreneurs stronger,
offer better returns for investors, and strengthen
the overall industry.
Next time: Putting good money after bad
Agree? Disagree? Please email your viewpoints and comments to comment@FundingPost.com we will discuss your comments here.
Read previous Venture commentary here.
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