Fund Raising in a Recession
While it seems the Pacific Northwest may be shielded from the worst effect, each day it appear clearer that the country is headed toward recession (if not already fully enmeshed in one). Consumer spending, the engine of the most recent economic boom is drying up, with the problems in the capital markets trickling down to the lowest levels.
We thought it would an interesting time to address the question of how this will affect angel and venture capital investing. Typically, angel money dries up first during a serious recession as angels have no need to spend those dollars on investments. Looking at the dollar amounted invested by the Alliance of Angels over the last 10 years, it closely mirrors an graph of the US economy with about a one year lag. Thus far we have yet to see any real drop off in investments but it is something we will keep our eye on.
Different theories abide on Venture Capital investments during a recessionary period. One one hand, ad revenue dropping will hurt start-ups depending on that strategy and require VC's to keep more money reserved for follow on investments. On the other hand, VC's with a fund already raised will need to find opportunities and valuations on good prospects should fall.
Any entrepreneurs out there- how are you finding the current fund-raising process?
We thought it would an interesting time to address the question of how this will affect angel and venture capital investing. Typically, angel money dries up first during a serious recession as angels have no need to spend those dollars on investments. Looking at the dollar amounted invested by the Alliance of Angels over the last 10 years, it closely mirrors an graph of the US economy with about a one year lag. Thus far we have yet to see any real drop off in investments but it is something we will keep our eye on.
Different theories abide on Venture Capital investments during a recessionary period. One one hand, ad revenue dropping will hurt start-ups depending on that strategy and require VC's to keep more money reserved for follow on investments. On the other hand, VC's with a fund already raised will need to find opportunities and valuations on good prospects should fall.
Any entrepreneurs out there- how are you finding the current fund-raising process?
Labels: recession
posted by Jacob Miller at
9:16 AM
3 Comments:
I think good business ideas will get funded on good and bad times. The problem is between a good business idea and a bad business idea, there is a huge sea of unknown and those might suffer.
I don't know of any angel that told us they would stop or reduce their investments because of a recession.
On a brighter note, times like this kind of force people to take a closer look at investing opportunities so while some companies might not find easy funding, some companies that never should have been funded in the first place, won't.
Economic times like these make it even riskier for the budding entrepreneur to launch into their own business using borrowed money or credit cards.
For startups out there, you need to sell something and create market traction. If you do this during such difficult time AND you have a strong management team, good ideas and high barrier to entry, then you will always get funded no matter the economic weather.
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