Entrepreneurs: The End Is Near. Refinance.

Look, don't be so alarmist. This article is spot on.

It's not saying the sky is falling.

Venture funding isn't going to dry up. It's going to tighten up. In three to six months. That's the thesis of this article.

I believe it's plausible that the venture market will cool down soon. Here's why:

A lot of companies have been getting funded now with very company-friendly terms and valuations. This is because the investment market is hot right now. An entrepreneur told me, in January, that this is one of the best financing seasons he's seen in a while, and that anyone looking to raise money should do it immediately. He predicted the market would stay hot until the summer, but was cautious about predicting after that.

It seems inevitable that the market will cool down at some point. VC funding keeps lagging general economic trends by a quarter or two, the article notes. The economy is currently down. The author extrapolates that VC will be down soon too. Seems like a reasonable inference.

This article predicts that in three to six months, that it will be more difficult to raise money. Not impossible, just more difficult.

Companies with sound fundamentals (i.e. proven business model) will still get funded. They just won't have money being stuffed in their hands. Terms won't be as favorable to entrepreneurs.

Am I the only one who finds VC telling entrepreneurs "everything is going to crash soon, so you better close soon and on whatever terms you can get" disingenuous?

The reality is that with the current financing environment, there will be a ton of "orphaned startups". So if you're startup that raised an angel round of $500k but will need to raise a real Series A down the road from VCs, you may have a tougher time unless of course you are a breakout success (translation: outlier). And with Series A being tougher to raise, that startup will die die or sputter along for a while. Of course, if you can become revenue generating and a real biz, you may be able to live to fight another day.

Angels, unfortunately, cannot bridge this gap as they can't write the bigger checks of a Series A, B, etc round. So while there may continue to be seed/super early stage money to start up, it's the follow-ons which will become more difficult. This, of course, may just be natural selection at work and a good thing.

Also, while the article talks more about VC, if the stock market falls and uncertainty grows, angel investors will also pull back. Of course, there will be some who will not, but for many, their wealth goes up and down every day with the markets. And if they are feeling less wealthy, their willingness to invest in startups (the new status symbol for many) will also decline.

It's not about VC. It's about angels, and Angel List.

Angel.co has gone from 25 to 3000 investors in 18 months.

Add 10 to 12 IPO's in the next few years, and you'll see thousands of newly minted "Qualified Investors" interested in angel investing. Where are they going to go? Angel List.

They've gotten over 600 startups funded in the past 18 months... I think they're just getting warmed up.

What is it about people with money and October?

Remember three years ago almost to the day when Sequoia said investment in start-ups was about to dry up?

http://gigaom.com/2008/10/08/sequoia-rings-the-alarm-bell-si...

luckily founders of Twilio,AirBnB, and Foursquare didn't listen and got started around then.

It's a strange situation.

My take on the startup "bubble" is that the stock market, bonds, and hedge funds have done poorly lately.

People with money are looking for alternative investments, and often that means startups. If money gets pulled out of startups, where is it going to go?

Well... no more double-digit mio investments in companies like Color?

Probably not the worst for the tech-entrepreneur scene.

I wonder how much this will impact the accelerator scene, since a lot of accelerators which have tried to replicate the YC model are viable mainly because there are substantial sums of money floating about to "accelerate" startups towards. If so I wonder what the lag will be between VC money becoming harder to obtain and accelerator programs reducing their intakes.

Sometimes it seems to me like many people are betting the farm on getting funded without already being in the coveted position of having prior successes which will (mostly) guarantee them their funding. I tend to think it's best to operate as though you're not going to get funded. Build/bootstrap a sustainable business (i.e. build something useful that people want and charge money for it), make it successful and leverage that to build a bigger idea. If along the way you get to accelerate the process through funding, fantastic, but without it, you've still built something successful and can then fund your own next idea, or potentially use your success as proof of the fact that you're a lower risk when it comes to funding.

If this will happen, thing may still be good (or even better) for bootstrapped startups, or those that try to get to break even early...

I wonder how much of this applies to Europe. Interest rates are extremely low at the moment, and will likely remain so for a year or two. Thanks to these low rates, banks spent two years hoarding cash, and are now starting to lend it back to businesses and consumers. The currency market is undervaluing GBP and Euro, which will help exports and global services based here.

From a purely monetary point of view, the next 12 months will be great for businesses in UK... and possibly in the Eurozone as well, if the Greek bomb is somehow defused (or something else diverts media attention from it for a few months).

I had to double-check the author of the article.

For a second I thought Eddard Stark was freelancing for the Wall Street Journal.

It's always fascinating to me when the population knows that certain events don't affect their line of business, but they let it influence them anyway. It happens so much, not just in private equity, but in corporate finance too.

" Prediction is very hard, especially about the future " - Yogi Berra

Where should investors be putting their money? The stock market is extremely volatile, and it is no higher than it was years ago. T-bonds are paying historically low interest. Even real estate looks really risky. Meanwhile, startups have been doing relatively well. Startups like AirBNB, Groupon, and Dropbox have all grown really fast.

Who cares about the short term cycles, as time goes by there is more and more money to be made online and ever increasing amounts of quality web companies being started. Those that stop investing will just miss out on quality companies.

Sure the valuations may not be as crazy high but that didn't seem to be a bad thing a few years ago.

I'd call BS on anyone saying the investment climate is going to be markedly different 3 to 6 months from now. no one has a crystal ball, and neither does he have inside information unavailable to everyone else.