Is The Venture Capital Party Over?

This is great news for the shoe string startup! Present a challenge to monetize, that will seed the entrepreneurial spirit.

Sure seed stage ventures are going to be hit pretty hard. But I bet startup funds or first-time venture funds will be hit even harder. Few institutional guys will stick their necks out to back new VCs.

How far will it go is the million dollar question isn’t it? Maybe the side effect of this will be investment in only good solid businesses that provide long term growth and wealth.

This is WHY people hate MEDIA.

The gloom and doom “message” being tossed out by people with a platform….. It’s sad that even the new media properties are starting to fall into the same trap as the old media. Selling cheap headlines ala ValleyWag….
If the shit is hitting the fan, then I’d like for Techcrunch to write a long post of the restructuring charges and changes they are taking for this nuclear winter.

Sure, there are issues in the economy. But, jesus what has changed in the past six months?

Alex
unless you’re living in a cave I really don’t need to explain the subprime mortgage crisis and the growing consensus that the US might be heading into a recession in the post. That’s what’s changed in the last 6 months.

I’d also note it’s not all doom and gloom, see the last paragraph. Money is still there, just not as much of it and VC’s are already getting more conservative in their investments, see the post about b5media being knocked back repeatedly on a $20m valuation as but one example.

In Russia, it’s the best-ever quarter for VC investments in tech, is youi read my blog.

The reason for this is that America is really dying, Israel is the future tech powerhouse of the future.

The economy certainly isn’t going gangbusters but we should watch the ‘R’ word.

Stagnant to very small growth is bad, but it isn’t two consecutive quarters of negative economic growth.

Duncan, I live in the bay area and assure you that many people are going through some challenging times . But, unless, the news wires are being put in a bottle and being sent to Australia via ocean currents this news is not new. We all agree that VC’s move in a herd mentality and investing may slow. Hence, that is why you are seeing VC’s scrambling to close new funds so they can sit on the sidelines and collect 2%-2.5% management fees for the coming years.

But, maybe somebody should send a memo to the VC’s that invested in Ning at a valuation of $500M and tell them that VC’s are scaling back…

If I am not mistaken, web startups’ percentage share of the VC has been shrinking, perhaps because they don’t need as much financing as they once did. Web startups are increasingly cheaper to finance. But with a worsened climate for IPOs and a more generally conservative investment climate, you wonder if the web startups with true potential that need significant financing will be able to raise enough revenue and VC. I reckon that in the natural selection of web startups, there will be less mutation (variety) - the interesting startups are usually risky and take a long time to develop. Variety is important.

Ad revenue on the web is not going to grow as quickly. Is that a direct result of a decrease in consumer sentiment and a decrease in spending on the web?

I still think that in certain untapped “corners” of the web, there will be healthy growth.

The only question now: how far will it drop, at what rate, and how much of the broader downturn in investments affect internet venture capital.

thats 3 questions really - all good ones but different.

So much has been said about how much cheaper it is to startup today then just a few years ago, if the VC money dries up, it may force more entreps to dig in deep and bootstrap it, and maybe when things get rosier again for the money guys the shift will have been completed and new smaller/smarter investment models will overtake them.

@ 6 - America is really dying? come now, thats a bit of a stretch. other spots may be emerging but America is not dying.

When the boiler is getting too hot the lid pops off. We’ve seen it so many times before and we’ll see it again.

Yes it is.

The pace of early stage internet deals has slowed considerably.

The perspective could be very different on why the numbers are low. It definitely shows that VC are being conservative. But why? The economy could be the obvious answer. But could it also be the quality of tech companies?

In the last 6 months, we have seen the struggle companies, who rely on advertising, go through to actually create returns for VC’s investment. Think Facebook and think pretty much at least 50% of the social networking sites. It could be that VC’s now know that startups who base their whole revenue model on advertising will not make it. And there could be a possibility that in the last 6 months, VC’s may have rejected a lot of these startups thus reducing the number of investments and the amount.

This is just me thinking out loud at 11:55pm. So I could be really off.

we go through these recessions every so often, sure America might be in a slump right now since we have morons in charge of the country, blame Bush for choosing his drinking buddies for all the top jobs. But eventually it’ll recover.

The problem I see is that because of this current slump America is going to lose the 10-20 years that it was SUPPOSED to dominate. After which it’ll be even harder to be competitive because of China.

At the same time, rumours abound that Michael Moritz is looking to raise capital to start a tech focused long/short hedge fund…

@Kevin - you have no idea what you’re talking about, go away.

I would say that the post title is a bit misleading.
Q2 2007 has also a small decline, but the fact is that a slow economy
affects everything. Maybe it’s the lack of original ideas too.

I have to say maybe its a good thing, there seems to be a trend where features not products are getting funding when they shouldn’t.

The drop isn’t dramatic, but it’s the first signal of the downturn, also in Silicon Valley.
I can easily bet that the figures will be lower in Q2.

What’s the standard deviation on investments per quarter?

israel is the next powerhouse? hahaha. i almost laughed at your joke.

The only thing Israel has to offer is the suicide bomber

So you mean there will be fewer VCs interested in my new Web 2.0 social trivia gaming video discovery widget, Qyzzzix?

I’m with Alex. The media is responsible for perpetuating fear and driving the economy even more downward. Ignorance is not bliss, but neither is yelling “fire” in a crowded movie theatre.

It’s sad that techrunch is now pumping VW garbage.

@Isaac Vindaloo… lol. Word.

Come to Kyrgyzstan! Home of the new Hypersilicon Valley! Where dreams are born!

You guys sound suprised.

Lets step back a bit. VC equity does not differ from debt in that, although it may not depend on high leveraging, it depends upon an insanely inflated IPO price which has depended upon the world being awash in liquidity.

This tech crunch is not an aberration, what went before was an aberration. There is absolutely no reason to think that companies unable to turn a profit will be attractive to anyone. The only people they were attractive to in the past were a type of speculator betting on their increasing inflated value. Once these values take a dip, then the market for IPOs will simply dissappear.

Contray to the early credit crunch belief that VC will escape the storm, this is now showing that VC is in the eye of the storm. IPOs inflated values make sub-prime look like a good investment.

What photo is that? It looks interesting.. but there’s no caption.

Much thanks in advance.

Cheers,
SML