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Putting Good Money After Bad
What a difference a year makes. VCs
invested over $104 Billion in startups last
year, up 57% from 1999’s $59 Billion
(Venture Economics).
With so much capital at work and even more
laying in funds– why are so many startups
crying and dying? The staff at FundingPost.com
sees VCs pouring money that should have been
allocated to new investments, going back
into their dying (we mean previous)
investments. This is good and bad:
1) The good: Supporting previous portfolio
investments is great. It shows the faith
and dedication that the VCs have put into
the company and the entrepreneurs who
founded them.
2) The good: “Good” companies get the
chance to execute on their vision. The
point is for the company to either become
profitable or to wait out the market until
it improves.
3) The bad: Putting good money after bad –
some of these companies do not deserve to
live. They have bad business models and
will probably never be profitable or make it
in the real world. But the VCs feel that
they have to kick in more money, out of fear
of having to tell their limited partners
that they lost another investment.
4) The bad: Partners in these funds
are stretched with too many board seats and
struggling companies. They do not have
enough attention for their dying
companies, let alone new investments.
The staff at FundingPost.com believes that
this will continue through end of the
summer. At that point the VCs will have
pulled the plug on the duds and strengthened
up the potential “winners” with cash to
stand on their own, begin looking again
for new investments.
If you received venture funding last year
and are going back to your investors for
more money, you have better successfully hit
all of your milestones, communicated with
your investors on the good and the bad, and
have a very clear path to profitability - or
they will leave you out to the sharks.
Next time: Money sitting on the sidelines
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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