Fred Wilson: Capital Crunch Coming, Companies Will Die

Henry Blodget | January 30, 2008 11:27 AM

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Union Square Ventures partner Fred Wilson (SA 100 #3) is increasingly bearish about the financing environment for private start-ups. In an interview with Portfolio's Sam Gustin, he explains that troubles in the public market will eventually lead to:
  1. Lower valuations for private companies
  2. Less venture financing
  3. Death of promising start-ups.
Fred has discussed the domino effect before, as have we. It happens every cycle. So raise money while you can...

Quotes:

"There has been a real 'de-risking' of the market, which will certainly affect the I.P.O. market...That will impact the late-stage venture market, because the I.P.O. market drives the late-stage venture market. And that will slowly impact the early-stage venture market."

"Valuations will come down. There will be less exuberance about venture capital investments. What will probably take place is a flight to quality. Venture capitalists will want to invest more in the companies that look like they're going to be successful and be a little less willing to take fliers on things that are hard to really handicap.

"If the financing environment changes, we'll try to take advantage of that and invest in companies at lower valuations than we would otherwise be paying."

See Also:
VC Fred Wilson: The Coming Downturn
Dear Internet Industry: Brace for harder times

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8 Comments

freshman said:
video editor for mac can merge multiple videos you like into one large file.
shark food said:
Another probably-missed nuance is that Fred's statements (which may be true and heartfelt) are also self-serving: "his $125 million venture capital firm will actively look to 'take advantage' of any slowdown by investing in startups at lower valuations".

Founders, be careful out there :)
Henry Blodget said:
Fred, thanks. Certainly didn't mean to suggest you were bearish on start-ups! I thought key point (which I agree with) was that start-up market not insulated from public market and macro.
Fred Wilson said:
Henry,

I am not bearish on the startup and web apps market, I am just a realist and expect that we'll see the venture capital market adjust to the overall capital market environment.

We are bullish on startups, venture capital, and web apps and plan to continue to invest in things we like.

I know you understand that, but I am not sure all of the people who read this will understand that nuance.

Fred

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