Dear Investors And Portfolio Companies: We're Broke

Yesterday, we wrote about the cash crunch beginning to hit the venture capital industry. Limited Partners–endowments, pension funds, moguls–are facing a cash-crunch of their own, and, as a result, are getting stingier about handing out cash to VCs. Some VC firms, meanwhile, are already running on empty.

Most of the impact thus far appears to be at second- and third-tier VC firms. The newfound frugality at the top-tier firms is, so far, mostly self-imposed.

Here’s how one small Silicon Valley VC firm, Nueva Ventures, explained the situation to its investors on October 31:

Things have been exceptionally challenging the past few months with all that is going on in the financial sector…

We have 10% remaining in capital calls on the fund and cash reserves at hand on the fund are down to zero, but I expect we can get to the end of the year without a capital call…

The exit market has essentially shut down this year.  There have been <10 IPOs when historically there have been over 30 and M&A activity is down 25% over last year.  The larger VCs are “hunkering down” with the reality that they will have to fund their existing portfolio much longer than anticipated.  This is shifting capital away from the traditional early stage investing to later stage “at revenue” companies. The VCs, like Sequoia who has been most vocal on this, are telling their startups to drastically cut costs and get to break even.

How are other VCs doing? All sources kept confidential. Thanks in advance. [email protected]

See Also: The Cash Panic Sweeping the VC Industry

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