Editor’s note: Bill Warner writes “The Angel Connection” which is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the , an angel investor network with members throughout the Southeast.
RESEARCH TRIANGLE PARK, N.C. – In 2009, the venture capital industry experienced the biggest gap between investment and fund raising in the last six years. In a recent blog, it was reported that investment was down nearly $10 billion, from $30 billion to $20 billion, while fund raising declined $17 billion, from $30 billion to $13 billion.
This $6 billion plus difference is the amount more invested than was raised by VC’s.
Bad News for Companies
The implication is that although venture firms still have a lot of money, it is still going to be increasingly harder to get funding because they are running low on available funds and it is still very difficult for them to raise further funds from their limited partners. Their limited partners are still suffering from the economic downturn and have not opened this investment class for funding.
Corporate and other private equity investment is also suffering, further reducing the number of options for equity financing.
Is IPO the Answer?
Another source of funds could be successful IPO’s, which could breathe more money into the VC firms. We have recently read about an emergence of IPO filings, including Motricity, a former RTP darling. However, many analysts are quite skeptical that 2010 will bring much hope in this arena either.
What Companies Need To Do
2010 is not going to be much different than 2009; perhaps worse, with respect to your chances of getting new VC investment. It is still a game of the "best of the best" getting due consideration. It means that you need to have a very compelling business, with meaningful and growing customer traction, having the potential for large and rapid growth, to a level that will provide a handsome return.
Due diligence will be treacherous, filled with disappointment for many, but there is still gold in "them there hills." You will have to mine it with a focused laser.
About the author: Bill Warner is the Managing Partner of , a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the , an angel investor network with members throughout the southeast.