Startups looking for fresh rounds of capital are totally hosed says Pui-Wing Tam of the Wall Street Journal in an article that immediately sparked a debate between prominent startup investors.The crux of Tam’s story:
For most of this year, a start-up fever, fuelled by Facebook Inc. and others, has gripped Silicon Valley. But as the number of tiny Web companies riding the frenzy has mushroomed, some in recent weeks have found it tough to procure new funding, investors and entrepreneurs say.
That is pushing some entrepreneurs to look for “bridge” financing to keep forging ahead, or to cut the valuations they are seeking, the people add.
Angel investor Chris Dixon quickly smacked down the article on Twitter saying, “the WSJ article is wrong.” He added, “I just haven’t seen any bridges in the ~100 companies I track.”
Chris Sacca, another prominent angel investor backed him up saying, “I definitely don’t agree with the article. Valuations are still high and I haven’t seen evidence of cash crunch.”
It turned into a big pile on with everyone in the investing space dumping on the article. Dave McClure wrote, “they’re predicting market dislocation that hasn’t happened yet. poor reporting IMHO.”
(Techmeme founder Gabe River summed up the article and reactions best saying, “This a good summary?: Modest seed valuation drop: PROBABLY. Cash crunch? NO. Seed volume sustainable? NO/YES. Most A/B valuations high? YES.”)
Our own experience lines up with what all the investors are saying.
Of course startups will fail, that’s the nature of the business. But solid startups are having no problem getting funded. Knewton just raised the biggest round in education-technology history. Pinterest received a $27 million check last week at a ~ $200 million valuation.
WSJ is right about one thing. The downturn is inevitable. As we’ve written before, There are a lot of small teams building small ideas. The companies won’t amount to anything; they’ve been able to exist because investors gave them cash.
When their money does run out, they’ll die, and it will be great for the tech community. Talent will scatter to more innovative startups that deserve it and need it.