Venture Capital - Who Needs It
Bill Warner Sunday, December 07, 2008
According to observers at TechCrunch there are more signs of weakness in the venture capital world. Private equity in general is very much weaker due to the economic downturn as institutions pull back on their capital commitments and private equity firms reduce their new investments trying to reserve cash to protect their current portfolios. Some institutions are even selling off some of their investments at large discounts. Now we are starting to see increasing layoffs in venture firms as they reduce unneeded staff.
Surviving Without Venture Capital
Another interesting perspective is emerging as seen in Paul Graham’s recent blog. It is evident that starting many online businesses doesn’t take as much capital to get started as it takes a pure software company. Many of the services that an online business needs are already available, like marketing, sales, distribution, payments, etc. Obviously it takes capital to develop the unique aspects of any new service offering, but that is usually the role of angels and friends and family investors, long before any venture firm wants to get involved. This observation coupled with the more astute business experience of today’s entrepreneurs leads many of them to conclude that they do not need venture capital money. Their intent is to get to positive cash flow through grants, loans and angel money.
The Role of Venture Capital is in Question
This perspective applies to the limited number of businesses that don’t require much unique infrastructure to become operational. Because it is now so hard to raise venture capital, many new companies are going to design their business models in a way that will exclude the need for any funding after the seed round. I think we are going to see more news about how the role of venture capital is going to change in this recession.
Filed Under: Angel Investment, Financing a Company
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
