BUSINESS BLOGS
BUSINESS BLOGS
category: business
24 Oct 2008

I am still surprised when something I say turns out to be accurate, or at least, supported by a member of the group that I am talking about.  Regarding what to expect re: VC-backed firms, I wrote:

(…) Many other startups that were funded in the past few years involved over-confident VCs flipping a coin in the air hoping it would land on jackpot.  But as the economy tanks and credit becomes scarce, financiers realize this isn’t time to play Grown Up Monopoly with real money…in fact, many companies don’t pass Go and don’t collect $200.

This is why we’re seeing all of these layoffs.  Make no mistake about it:

- quality companies with a glimmer of hope are being funded and reinforced as we speak,
- so-so players are being asked to reduce costs until a final judgment is rendered,
- defo losers are being shut down.  Some might have to repay the money they raised.

Today I read this:

John Steuart, managing director of Claremont Creek Ventures, which closed a $175 million second fund in September, agrees that we’re in for a long haul. He says that because most startups take enough cash for about 18 months, the fallout could continue for about that long, as some companies seek—but are unable to find—cash. Steuart says 75% to 80% of Claremont’s existing portfolio will need capital in the next year and half.

“We’re now more thoughtful about reserves and are prepared to finance a company without new partners,” says Steuart. But he’s also prepared to pull the plug on those companies that don’t perform, calling it prudent in this new environment. “If something doesn’t work, you’re not going to give it time and extra money; we’re just going to shoot it,” Steuart says. “That was part of the message our [limited partners] had coming to us with more money. They told us, ‘Shoot the losers faster.’”

It’s refreshing that some VCs are being candid about it… As an entrepreneur, you have to be careful what you agree to, if you agreed to VC’s draconian terms in boom times, you have to live by those terms in bust times, too.