Dow Jones Industrial Average, 3 Months Ending Tues, Aug 09, 2011. Source: YahooFinance

This week’s global stock market gyrations foretell tough times ahead for startup entrepreneurs. When investor confidence dips, VC investment dives. We need only look to changes in investment in 2008 and 2009 to predict how 2011 and 2012 will shake out.

VCs will invest less, immediately.
My friend Matthew Rosenberg, CEO of FastSociety, recalls an angel-investor meeting in 2008 that ended suddenly.

“We were in a meeting for my last company and everything was going well,” Matt told me today, “but that day the market dropped seven hundred points. In the middle of the meeting the investor checked his phone, went to the bathroom for a while, came out on the verge of tears, and left the meeting. That was the last angel investor meeting we had.”

Ending the company took time. “We slowly sputtered out,” says Matt, “in recession hell.”

Matt Meeker, entrepreneur in residence at Polaris Ventures, told me today that “many angel and VC investors are former hedge fund guys whose personal wealth is tied to the market. When the markets change, their reaction is pretty immediate.”

Entrepreneurs, go into survival mode. Now.
If you’ve raised some money, you’ll have stretch that money as far as possible. Don’t expect an easy seed round in 6 months. You’re going to have to buckle down, focus on key metrics, and figure out how to make money. Don’t make unnecessary hires and do get rid of underperforming people. Maybe even consider getting out of your office lease if you have one.

Never stop fundraising.
Not all investors will stop investing all at once, but only tenacious entrepreneurs will find funding in a skidding economy. Keep networking, sending updates, and following up on introductions.

Don’t assume things will improve anytime soon.
In 2008 the US used huge government bailouts to spur a speedy recovery of global markets. But now, thanks to the Tea Party, our government is unable to react with sensible policy.  What this means for your startup is that you’ll have to stretch your dollars and resources for possibly years.

Be prepared for life after you’ve run out of money.
If investors aren’t investing, and your customers aren’t buying, prepare yourself, your family, and your ego for your company’s coming end. Form a back up plan and cut your personal expenses now so you can have some cash on hand.

Share on Tumblr
  • http://arshadchowdhury.com/ Arshad Chowdhury

    Revisiting a past prediction: VC investment did drop significantly in Q4 2011 and Q1 2012. I couldn’t find good data on Angel investment. I was too bleak in believing things wouldn’t change anytime soon, though. Investments returned with a vengeance within 8 months. http://www.cbinsights.com/blog/wp-content/uploads/2013/11/SVAlmanac1.jpg