The Venture Capital Industry: The Current State of Affairs
There has been a lot of conjecture about how the Venture community will respond to the economic downturn. My personal opinion is that its going to be bad, really bad. If the limited partners who fund venture firms either a) change the percent of funds they allocate to VCs or b) don’t come through on their capital calls, we’ll all quickly find the venture community becoming drastically constrained. Instead of making as many new investments, VCs will use their cash for inside rounds to fund their top preforming portfolio companies that have the greatest likelihood of success.
Erick Schonfeld writes about the current state of affairs in his TechCrunch post: “The End of Venture Capital as We Know It”
There is a fantastic community post on The Funded that provides an impressively helpful overview of how Venture Capital the relationship limited parters: “The Limited Partner Shuffle”
And Matt Marshall goes into further detail with his post: Cash panic sweeping the VC industry: the capital calls problem.
Last week I hosted a panel of Los Angeles Venture Capitalists with Jim Armstrong (Clearstone Ventures), Mark Suster (GRP), David Travers (Rustic Canyon), and Brian Garrett (Crosscut Ventures). You can see the recap here on the DealMaker Media Blog and here on Nicole Jordan’s new blog KickingSand.com
So what does this mean for internet entrepreneurs?
If you’re about to start a web based business, consider building websites or applications that aren’t going to need a lot of capital before they start making money. Think, “what can I build for 50K or less that I can break even on and still continue to grow the user base“.
For existing internet entrepreneurs who have already raised money, we’re all going to be in the fight of our lives to make sure that our companies/applications stand out from the rest of the pack and have a shot to get some portion of a shrinking pie.
Here is the latest presentation from Adeo Ressi of TheFunded: “The Caranie is Dead: Something is Wrong in Venture Capital Q3 2008″
Venture Capital Trends - the Canary is Dead by Adeo Ressi - Get more Business Plans
