By Kresimir Peharda, Partner.
The LA Times reported on July 14, 2016 that LA start-ups received a whopping 57% cash from VCs in Q2 of 2016 compared with 2015. See http://www.latimes.com/business/technology/la-fi-tn-venture-capital-second-quarter-20160715-snap-story.html
Quarterly investment …”into older start-ups was cut nearly in half to $7 billion from $12 billion last year.” Mobile start-up exits peaked in Q2 of 2015 and are now on a downward spiral. Is the sky falling? Maybe for those start-ups in need of VC capital that are not ideally positioned to raise money in this environment.
These statistics are in line with anecdotal evidence from service providers working with start-ups in Northern California as well.
According to the Times, the following sectors have been hardest hit:
- Smartphone applications
- Older start-ups
Sectors that were riding a tailwind include:
- Augmented and virtual reality applications
Start-ups with high burn rates will have to adjust quickly or perish. Giving its prominence in terms of expenses cutting staff may be an inevitable result of the new funding environment. In addition, valuations will be lower than what many founders hoped which will change their financial projections, capitalization tables and exit opportunities.
Some options to consider are:
- Pivot to monetize sooner
- Raise capital from non VC capital sources
- Explore public or private grants
- Incubators and accelerators
- Online funding platforms
Ironically, this environment will make a start-up’s selection and use of service providers even more critical.