The tone down in Silicon Valley
Sure, I admit that I’m not going to represent a scientific study as to what technology investors in the Bay Area are feeling right now but I am quite happy to share commentary from several VC’s I’ve communicated with over the last few weeks. At the moment, Imagekind is working on a Series B round. As a board member, I occasionally participate in these meetings either in terms of helping to set them up or simply to support the effort as (one of the) entrepreneurs behind the concept.
Based on my dialog with these investors, I have come to develop better understand how the downturn in the economy is affecting the overall tone here (I am currently writing from a Starbucks in San Mateo).
1. For whatever reason, the venture community responds and lags behind the overall economy by about 6-12 months.
2. Indeed, it is taking longer to raise money and valuations are generally negotiated lower now.
3. This is not the case for a select few start-ups that are known and understood to have competitive investor discussions.
4. Unknown start-ups with unknown management will have a hard time getting deals done this summer and should prepare accordingly.
5. For “consumer plays”, a premium is still placed on high numbers of unique visitors. Not necessarily early revenue.
6. VC’s seem to be “sticking to their knitting” more now. That is, a late stage VC would have been known to make more exceptions in their investment patterns during the prior two years in that they might have invested $2 million when their normal “sweet spot” investment size was $7-$10 million. You’ll see fewer of those exceptions over the next 12 months. Prioritize and schedule VC meetings that are most appropriate for your deal size.
7. For whatever reason, VC’s seem more willing to consider deals outside their traditional geographies now. Globalization taking hold? Seattle, India, China, Dubai. It matters less where the good deals are now. If you’re good and you have a good story you are less likely to hear things like “we really like you but you’re in Seattle and we’re in Los Angeles.” You’ll see California investors announcing more deals in India and anywhere else they can find a competitive advantage.
8. In spite of the economy, Bay Area VC’s still have a lot of money to put to work. They want to put it to work. But, they are more cautious than they were a year ago. The money is there if you’ve got a good investment opportunity. Thus, Seattle entrepreneurs should make investor pitches in this area a priority. Connecting the right firm for your deal is 50% of the work. Do not prioritize based on the biggest names, names you know, names you read on Techcrunch etc. Do your homework and there is plenty of money to be deployed here.
9. Close times are back to normal. That is, even really good deals will go through a slowed diligence process now. Imagekind got its first $2.6 million term sheet in about 14 days after the first phone call. There is a less frenzied tone in the air but certainly the tone is more energetic than what I sense in Seattle. Checkbooks are out but your spreadsheets had better be detailed because lots of hand waving is no longer in fashion.
10. Spending time in the Valley is highly recommended for Seattle companies that pertain to specific technology “micro-trends”. For example, there is a specific VC audience for certain companies that are catering to “minipreneurs”. That is, companies like Etsy and Imagekind who enable the “micro business person” to make a bit more money. There may not necessarily be a VC with these specific religions because there are just fewer VC’s in Seattle. Making those matches makes both the investor and the entrepreneur happy because both view it as a win-win of a personal nature.
11. Make no mistake. The economy has turned full blown grins into mere smiles down here. That might even be understating the mood by a good margin. Even so, VC’s don’t seem to believe that the tech economy has Reaper knocking at its door. For now anyway.
That’s all for now. Off to the next meeting.
comments
Leave a Reply