February 5, 2008 at 05:12How will the financial crisis affect the global venture capital industry?
On the whole (c) Schwonder, the financial crisis in the venture capital market will have a negative effect in the short term. This is due to the following factors:
1. During the recession, advertising budgets are cut first, especially on new resources that have not yet won the trust of advertisers - this will hit Internet-oriented projects.
2. The cost of venture money for entrepreneurs (the share of the company that the investor receives) will increase. Value of startups will fall. It will fall due to the fact that it will become more difficult to make exits - and these are additional risks.
3. With the growth of risks in the capital market, the risks of venture capital funds will grow even higher; the profitability will remain the same at best. This is a bad symptom for limited partners. This means that in some period there will be a shortage of money for investment. Everyone will run to gold or to the Swiss franc. Consequently, startups for investments will be selected more carefully, bidding with them will become tougher.
4. Startups oriented to the consumer market will face a drop in demand, while those oriented to the corporate market will face budget cuts.
What will be good:
1. If Silicon Valley corporations begin to cut people, it will be easier for startups to look for employees, and employees themselves will try to create startups.
2. Startups focused on markets that are not affected by the crisis, or startups focused on cost savings in times of crisis, will have a high chance of success.
On the other hand, funds are formed with an eye on for 7-12 years, the industry is cyclical for 8 years. So, maybe due to the inertia of investments, everything will not be so dramatic.
PS. All Internet startups I work with got the idea: “do not focus on the advertising model, look for a model where users will pay you for services, such startups will survive the crisis easier” - now they’ll understand what I’ve been talking about.
PPS The crisis should not affect the Russian venture capital market very much. He is in himself.
PPPS There is an alternative opinion that investors will rush to invest in venture funds, since traditional investment tools will be very risky. Wait and see.
PPPPS I would like to look at people from MS who decided to invest on Facebook at 15b, which is only three (!!!!!!!) times less than Yahu Я
Disclaimer . The post was written based on conversations and correspondence with investors and entrepreneurs of Silicon Valley.
1. During the recession, advertising budgets are cut first, especially on new resources that have not yet won the trust of advertisers - this will hit Internet-oriented projects.
2. The cost of venture money for entrepreneurs (the share of the company that the investor receives) will increase. Value of startups will fall. It will fall due to the fact that it will become more difficult to make exits - and these are additional risks.
3. With the growth of risks in the capital market, the risks of venture capital funds will grow even higher; the profitability will remain the same at best. This is a bad symptom for limited partners. This means that in some period there will be a shortage of money for investment. Everyone will run to gold or to the Swiss franc. Consequently, startups for investments will be selected more carefully, bidding with them will become tougher.
4. Startups oriented to the consumer market will face a drop in demand, while those oriented to the corporate market will face budget cuts.
What will be good:
1. If Silicon Valley corporations begin to cut people, it will be easier for startups to look for employees, and employees themselves will try to create startups.
2. Startups focused on markets that are not affected by the crisis, or startups focused on cost savings in times of crisis, will have a high chance of success.
On the other hand, funds are formed with an eye on for 7-12 years, the industry is cyclical for 8 years. So, maybe due to the inertia of investments, everything will not be so dramatic.
PS. All Internet startups I work with got the idea: “do not focus on the advertising model, look for a model where users will pay you for services, such startups will survive the crisis easier” - now they’ll understand what I’ve been talking about.
PPS The crisis should not affect the Russian venture capital market very much. He is in himself.
PPPS There is an alternative opinion that investors will rush to invest in venture funds, since traditional investment tools will be very risky. Wait and see.
PPPPS I would like to look at people from MS who decided to invest on Facebook at 15b, which is only three (!!!!!!!) times less than Yahu Я
Disclaimer . The post was written based on conversations and correspondence with investors and entrepreneurs of Silicon Valley.