Pundits are painting a picture of doom and gloom for startups, saying it will be harder to raise money. What do you think?
I think the next several months and possibly years will be challenging for raising capital. There has definitely been a reset. The market was over extended in an unhealthy way and we are seeing the impact across the board.
The catalyst for this reset has been the collapse of public markets stocks where comparisons versus private startup companies are unfavorable.
Smart investors are saying: “Why would I invest in this promising startup that values itself at 10 to 15 x revenue when there are fantastic companies trading for 3 x revenue. It doesn’t make sense.”
Does that mean we should all throw up our hands? Absolutely not. We invested in Chef in January 2009, six months after the collapse. It was a great time. They started small with four co-founders. A year after, the company was 8 – 10 people and we raised a responsible $3.75 million to get started. Great companies were created in that timeframe just like they will be today.
The good thing about a market like this is it doesn’t attract the wannabe tourist entrepreneur.
Some investors are saying that in the current climate, many privately held companies will have to reset their valuations in order to raise money and survive. If you were an early investor in such companies, what would you advise them to do?
That is the harsh reality. Unless you can round up necessary capital internally and keep valuations just for optics, new investors will only do deals at lower prices.There is just no way around that especially where companies stretched to get to a valuation that wasn’t warranted, often times giving up term concessions. Valuation alone doesn’t mean much. Many entrepreneurs […]
