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Venture Capital and the Credit Crunch

Published: 9/24/2008 1:09:27 PM

With the recent crisis in the credit markets, there has begun to be a discussion about how that will affect the ability of entrepreneurs to find venture capital funding.

I see potentially a number of developments:

Venture capital firms, faced with a difficult exit environment, will allocate their limited resources to their existing portfolios to a greater extent, reducing their appetite for new deals.

The extent of the credit crunch will reduce enterprise demand for those portfolio company services that sell to enterprises, potentially increasing the time to cash flow breakeven or hurting revenue growth for VC investments.

VC firms will look to wind down their poorest performing companies, in order to free up capital to allocate to better performing companies.

The bar for making a new investment decision will be higher, requiring aspiring entrepreneurs to be further along with their venture and better prepared in their discussions with VCs.

Thus, I see the market environment for obtaining VC funding is getting more difficult, and requires entrepreneurs to be just that much better prepared during the fund-raising process.

Don Jones

VentureDeal

 

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Don Jones
CEO, VentureDeal

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