So You Think You Can Dance

I’ve said many times that the “Steve and Steve in a garage” startup won’t work but for a few new firms. The demise of venture capital is another sign I’m right.

The VC community is at an all-time low. Investments in startups have decreased over the last two years and exit mechanisms for those investors, including IPOs, have become scarce. There is way more VC money than needed by The System, even though it’s harder and harder to come by.

The VC community has battened down their hatches and has focused their money on later stage deals, existing portfolio firms, and companies that stand out in a constantly-increasingly crowded market. What this means to a new or early stage firm is that you’ll have to find other sources of capital, including around the playground (friends and family), personal debt, and strategic partners.

Strategic partners include materials suppliers and vendors, manufactures, and even customers. While not necessarily sensitive to price and terms, startup CEOs have to make a compelling case for an established firm to bother investing in a startup. This could be first or unusual access to new product streams and revenue, associated services that go along with those products, and exclusive supplier/manufacturer relationships. Positioning your firm into one of these categories is more likely to get an established firm behind you, but the investment case and ROI angle has to be there as well.

This can appear daunting for both the startup and the potential new strategic investor, but having a group of folks that actually know how to run a business, not just invest in one, is definitely worth the effort. And there’s access to their capital–natch.

This entry was posted on 9 August 2009 at 15:32 and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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