VCs? We Still Need Those?

First of all, the amount of venture capital that has been invested in the last couple of years has been substantial and growing by any measure, so the idea that a startup raising financing is "a complete waste of time" is factually inaccurate. What has happened is that we have reverted to a demand-driven financing environment which simply requires a company to demonstrate that they are fundable, which in many cases requires them to bootstrap early development.

Link: VCs? We Still Need Those?.

I'm at the DEMO conference in Scottsdale today and tomorrow and since there's plenty of good coverage out there in the press and in blogs, it doesn't seem worth rehashing what everyone's been talking about. The one thing that seems the most interesting to me, however, is the fact that, even while VCs are handing out ridiculous sums of money to certain companies, a good number of the companies presenting at the conference are all bootstrapped to this stage. While it's likely that some of them will score large buckets of cash from the VCs who seem to be hiding under every other table here (seriously, you can't swing your name badge around without clocking a VC in the head -- I tried), it's good to see at least some startups realize that starting up a company doesn't mean "get VC first." Of course, this may have been out of necessity. Many of these companies were born during the past few years when trying to raise money from VCs was a complete waste of time. The question, though, is whether or not things remain this way, or if the VCs are starting to turn their attention back to earlier stage companies again?

Comments

[Mike Masnick]

Hi Jeff... I think, perhaps, I wasn't clear enough in what I was saying. My bad. What I meant, was that for most new startups, the idea of going out and trying to raise funds before proving they're fundable was (is) a waste of time. In the boom years, the assumption was: step 1: get an idea, scribble it down on the napkin. step 2: get funding. Now, companies actually have to work a bit before they go for funding. I think both of us agree that this is a good thing... The point was just that it's nice to see companies that appear to realize the importance of proving something before just going straight to the funding stage.

[jeff]

Hi Mike,
I hope you are doing well, I don't know if you recall but we met once on a panel we both spoke on a while back (think it was on wireless broadband). I would have liked to connect with you at Demo, perhaps another time.

I actually got the gist of what you were saying, and more significantly, I agree with you. What I was trying to convey is that there has been a tectonic shift in the venture industry in the last couple of years in the way that new deals are funded, but it's happened all the while that billions of $ in new capital has flowed into tech startups.

I think it's ultimately a risk/valuation equation, a more hefty piece of the risk is currently being carried by the startups with valuations not appreciating significantly at the funding stage.