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Capital is Getting More Expensive

Published: 10/15/2008 3:17:36 PM

With the recent financial market meltdown, many participants in the venture capital industry are noticing that the cost of capital is going up, sometimes very steeply.

Here's a quote from Fred Wilson, Internet company VC:

"...the venture capital and related debt markets have been impacted by what has gone on in the past month. I am seeing it every day in our portfolio and in the investment opportunities we look at. Financings are blowing up, terms are being renegotiated, venture lenders are getting more conservative, and existing investors are stepping up to fill the gaps. The good news is that a lot of companies, and many in our portfolios, have raised money recently and have a good amount of cash on hand. Many of those companies who are flush with cash are cutting burn rates and making sure the cash lasts even longer."

Essentially as capital has become more scarce, the cost of obtaining it for startup companies to large Fortune 50 Enterprises has gone up dramatically. Valuations that VCs are will to pay for companies are dropping.

What to do? Obviously getting your company further along in its development will help increase your valuation. Getting to cash flow breakeven or profitability will reduce risk for a potential investor.

The days of getting funding with barely a prototype are gone for the foreseeable future. So do whatever you can to make your company look bigger and further along.

Cheers,

Don Jones

VentureDeal

 

Don Jones
CEO, VentureDeal

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