Proven entities
Great data released today over at Business Week on how venture capital has been getting along over the last few months since the financial crisis began.
I get asked two questions pretty frequently by friends here: 1) how has VC been affected by the crisis? and 2) how does it change your appetite and excitement for being an entrepreneur?
The figures released today clearly show that the crisis has has a deep impact on the capital raising efforts of VCs - in Q1 2009, funds raised were off 40% year-on-year and at their lowest level in 6 years. But its important to dig a level deeper than that. The firms that really struggled were those that were new to market - only 7.5% of funds raised were for new VC funds, the rest going to established firms with successful funds behind them.
There is still plenty of capital that needs to be put to work, even in a market as dire as this. The difference is that large institutional investors are being cautious and trusting their funds to proven entities. This kind of prudency makes sense and can be observed all over the capital markets today.
And in turn, successful VCs with new funds to play with are going to be employing a similar set of investment criteria. Gone are the long punts on unproven entrepreneurs with exciting ideas - this will be a time for prudent investments in entrepreneurs with successful ventures behind them, and for scaled re-investments in existing portfolio businesses to increase ownership positions and accelerate growth.
And so to the second question. Three funds in London raised a cumulative $1B in funds in the last 6months for digital media investments - all have long and successful track records behind them. For someone interested in digital media start-ups like me, that is pretty exciting. That is a lot of money to put to work in one sector. But to get your hands on any of it, you had better have a track record to stand behind, and if you don’t, you better partner with someone that does!
So this crisis does not put me off being an entrepreneur, many great companies have emerged from times of financial crisis. Although I recognize that raising money will be harder than ever, if you do manage to bring VCs on board, you can great pride in the long-term faith they are showing in you and your business.
