Valleywag makes the observation that Tech Crunch had just last week suggested that SearchMe was well positioned to weather the storm, mainly because of the heaping amounts of VCs they had raised. Yet today, SearchMe laid off 20% of staffers, joining a wide array of companies to do so this week.
I think Tech Crunch’s rationale (that companies that have raised oodles of money are safe) is hogwash: in this climate, I think the more VC you have raised / the more you have diluted, the more screwed you are.
It’s simple: after the dot com bubble burst, even laughing stock Pets.com returned money to shareholders.
I was asked by a VC I spoke to last year if I would try to raise money this year. His argument was that we were a safe company and had continued to execute so our chances were better. Reluctant to buy into that theory, I commented that had I raised money last year:
- I would have been replaced, probably.
- Our strategy would have been different, for the worse, as costs would be far higher but revenues not materially different, if not lower!
- Whomever the CEO was would be asked to gut the company now, after having been forced to add non-core staff last year to scale and reach that elusive hockey stick growth curve.
- We’d be weaker and forced to adopt a strateg-du-jour as we wait to see how our fickle and impatient investors react to the market gyrations.
The more I think about it, I think VCs realize just how misplaced and misguided their investment criteria and focus were of late… and the layoffs you are seeing are only the first inning in a much worst denouement:
VCs won’t come out and say it now, but they are asking these Web2.0 type companies to reduce burn rate so the VCs can comb through the portfolios and see which ones:
a) need to reduce their burn rate but can continue to see another day
b) which ones should be shuttered, with the money left in the bank returned to the VC.
Mark my words.
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