Tue 3 Feb 2009
I wrote recently that I think we’ll see less funding for startups in the near future – it seemed pretty obvious. Now the New York Times is reporting that this is exactly what’s happening.
First to disappear are so called “angels” – small private investors that were giving initial funding to startups in their very early phases of growth. Angels became an almost indispensable part of the startup game helping young companies become interesting enough for venture capitalists to look at. Funding their provided was much easier to get (if you knew right people in the US) than VCs and helped startups put together initial business plans, teams and mockups/demos of products/sites/etc.
But, as the crisis unfolds and economy corrects the mistakes in resource allocation to consuming (2/3rds of US economy is – or rather was – consumer based) angels face same problems as everyone. Some of them even used to invest money that was in fact credit against the value of their real estate or stock holding from past successful ventures. As value of both falls down so does their capacity to invest. Plus, with all the pessimism in the media people are even less willing to take any risks with their money looking rather for safety and savings.
But there is an upside to all of this, which I have pointed out in my New Year’s article: all that means better quality. Yes, less startups will get money, but those who will get funded will be those with better teams, better business plans and better, more innovative ideas.
Quantity will go down, so the quality will go up. This is good news, even if that means we won’t get another dozen of new, “unique” social networking sites.