Spent a lot of the day today trolling the blogs to find out what early-stage VCs are saying. Are they still investing? Are they waiting it out? Before I give you the answer to that question, however, I want to share some of the cool stuff I found.
I love it when I come across great stuff on the web. Useful stuff. Stuff you want to bookmark. Here is one such site -- TechStars Model Seed Funding Documents -- it contains sample legal documents for seed-stage equity financings. Very helpful! Another great site is -- Writing a Compelling Executive Summary -- after reading it all I can say is "Right On." I also found a blogger who is doing a grass roots survey about founder dilution -- always a hot topic. Submit your data and check back for the summary.
OK, so the answer I came up with to the question posed earlier is "it depends." VCs focused on growth- and later-stage investments are likely closed for the near term while they hunker down and focus on their current portfolio companies. On the other hand, VCs focused on seed- and early-stage investments seem open for business. This trend became noticeable during the fourth quarter of calendar 2008 and was (anecdotally) reinforced by the large number of early-stage VCs I saw in attendence at the Funding Post event last month in NYC (especially when you consider that it was a reverse venture fair where the VCs stay put and the entrepreneurs roam the room....) Most VCs I ran into at this conference are trying to invest in companies with "capital efficient business models" (a fancy term for "get to cash flow breakeven fast!") Not surprising.
VCs who were fortunate enough to close their funds in late 2007 or early 2008 are sitting pretty with cash to invest and they, too, seem to be focusing on early-stage companies in order to buy time until the economy improves and exit strategies are more likely to generate positive returns. Vintage funds that were hoping to start divesting their portfolios right about now are pretty much between a rock and a hard place. All VCs seem to be (i) investing at extremely low valuations (compared to early 2008), (ii) investing fewer dollars per company (over the life of the investment), and (iii) investing in fewer companies overall. They are likely anticipating the fact that some of their LPs may not be able to meet capital calls. Although a bit dated, this blog post by Brad Feld and Jason Mendelson has some links to good articles on this very topic.
So, if you're an entrepreneur with an seed- or early-stage business you're probably not in such a bad place, especially if you have a capital efficient business model. Time is on your side.