Dear Entrepreneur: Read This and You Just Might Survive

Posted by Warren Bergen on Tuesday, June 5, 2012 Under: Business
“And now, the end is near and so I face the final curtain.”
Frank Sinatra

In a normal market environment, it is difficult to raise capital for an early stage technology company and that is usually a good thing. A process requiring significant effort on behalf on the entrepreneur to raise capital will motivate the worthy founder and team to better prepare themselves than those competing for the same investment dollars. However, we currently are not in a normal market as we are all witnessing tremendous increases in the amount of capital being put to work in start-ups. Venture capital is well stocked in the USA while Canadian VCs are experiencing spotty flashes of support and angel capital has become very active on both sides of the border. It has been years since almost all of the ready companies are finding capital. Additionally, the infrastructure is developing with advisory networks, educational programs and incubators popping up everywhere like dandelions in spring. To work in this industry and look around one might easily assume then that the industry has evolved and is now less perilous than it once was. I wish this were true.                                                                                                                                                                                                                                                                                                                                                          Most of the companies that I see that are even worth half a look are finding capital. This in itself is a flaming, flashing banner screaming its message that the music is about to stop. But much more evidence of a coming capital collapse is found within the reports of economists who consider our global conditions. Within the next 12 months, we will likely witness another economic meltdown equal or greater than that of 2009. Robert Zoelick is head of the World Bank and has publicly stated that “We’re headed for impending catastrophe”. Color Zoelick’s as a moderate view. For an interpretation into potential extreme repercussions of this eventuality, click-through former hedge fund manager Raoul Pal’s presentation entitled “The End Game”. You’ll not have trouble finding it as his presentation has already gone viral.

And yes, this does impact our beautiful, fragile startup community. Except for a very few long-sighted angel investors, most vanish at every economic downturn as we saw most recently in 2000, and 2009. In both cases, it took two full years before most investors would even talk about a deal. I want you to survive what is about to befall us. Get your raise done right now. Just finished doing a raise? If it’s not enough to get you through to profitability, do another one right now and don’t quibble about valuation. Stock up on cash and treat it like it is the last round you’ll get to do. Also re-examine your projections in light of deteriorating economic conditions which will likely impact your capital need requirements as well. When this economic tsunami hits our shores, few investors will care about any young company. Investor confidence will consider broader economic conditions first on a quarter by quarter basis, then month by month and then week by week. Today, you’re still interesting. Hurry.

In : Business 

Tags: start-up capital venture entrepreneur