How is the economy/credit downgrade affecting VC and Angel funding

https://news.ycombinator.com/item?id=2922071

by dlitwak • 15 years ago

5 1 15 years ago

news.ycombinator.com

I heard some rumors that VCs and Angels might start getting more conservative, and the spending spree in Silicon Valley might be coming to an end. However, other people counter that the money put into VC funds is committed over a long period so they can't just withdraw at the slightest sign of an economic dip, so it shouldn't have an effect.

Do you think the economy and specifically the credit downgrade will have any effect on the difficultly to obtain angel or vc money?

pedalpete• 15 years ago

The counter argument is somewhat correct. The VC fund is committed, and the money has to be 'put to work' during the course of the fund.

However, if VCs fear that rough times are coming and that the companies they have already committed to may have trouble raising a follow-on round, the VCs may be more conservative investing in new businesses as they may be reserving some funds for their portfolio companies.

Angels can do what they want with their money. This can be a good or bad thing in the market. I suspect that part of the growth in Angel investments over the last few years has been the risk/reward equation in the public markets.

The public markets were risky, were we going to have a double-dip recession, are we at the bottom? or are we at a 'false peak'. It seems nobody really new if the markets were going to go up or down over the 1-2 year period. Lots of uncertainty.

There is always uncertainty in the Angel market, but the rewards opportunity is much greater than in the public market. Therefore, Angels would consider the company, the ownership they could get, and be in for the long-haul with an opportunity at a great return.

Now, I have no idea if the credit downgrade or other financial situations will have an effect on Angel or VC money. My best guess at this point would be that VCs will be conservative over the next 6 months. I wonder if we'll see a decrease in Angel investments, not because of the markets specifically, but because they invested heavily over the last few years, and are yet to have the returns to re-invest.

My 2 cents.

How is the economy/credit downgrade affecting VC and Angel funding

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