Thursday, December 18, 2008

2009 VC Fundraising Strategy

NVCA recently published a survey (here's a copy for you) predicting the venture capital investment climate for the upcoming year 2009. As already observed in the market, the survey result should really be no surprise but just another nail in the head. Overall, not the best news for startups. The good news is that there will still be venture investments for those who are best positioned and capture the right opportunities.

Situtations in both sides of the table.

Investor
  • shift focus on existing portfolio companies by allocating more follow-on reserve; thus, less money for new companies
  • reduce risks in early/seed stage capital allocation
  • set a higher bar in funneling investment opportunities
  • advertisement-based business model is no longer a viable option for most companies in internet/mobile
  • holds more negoting leverage on valuation. buy cheap and sell high is more attractive
  • many LPs deviate from allocating capital into VC/PE asset classes; thus, fundraising is more difficult
  • not betting on big exit opportunities in 2009
  • overvalued investments from the last two years need to be readjusted (or do something about it)
  • new deal pipeline will decrease
Entrepreneur (seeking early/seed funding)
  • we know the grim economic conditions and are working on pennies
  • ask for smaller capital to be conservative and prove that business is sustainable
  • will go out and raise the big round when the market improves towards end of 2009
  • friends and families seem to be better option than institutional investors
  • advertisement is still a viable option
  • cost of runnning a business is getting cheaper, and we'll survive
Where are the connects/disconnects here? Not much but there are some. Here are some tips for startups to become more attractive to VCs
  • PPT with ideas to change the world is for your blogs. You need product, user, customers. In a down economy, investors are more receptive to revenue generation than a grandiose vision
  • Hit every milestone. Exceed your own expectation. A company that got funded in 2007 ain't the same animal you are dealing with now.
  • Friends and families (and fools) are good options, and you should consider raising incremental investments from them. The real caveat... if you are dealing with the "wrong" type of friends and families, you end up having a full-time fundraising job.
  • Start building rapport with (highly likely) VC investor now. Wow them with the progress you are making. They might have more time "networking" with entrepreneurs now that the new deal is slowing down.
  • Innovate on business model.
  • Remember debt is another option.
This is, by no means, a complete list of to-do's. Seriously, it's no brainer.. but requries very hard work. Enjoy the holidays, and get back to work in full force for the great 2009.
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