DealHorizon - the faster, easier way to create and share business plans

In the past few days I've caught up with several friends operating inside VC funds. I asked each what they thought the impact of the current crisis would be. The answers I go can be broadly placed into three categories:

1. LIQUIDITY:

Everyone I spoke with had the same thing to say with respect to availability to capital - with the exception of the additional capital that VCs are placing aside to ensure their existing portfolio companies make it through the coming recession, liquidity is not an issue. Capital is available - VCs have raised a lot of money over the past three years.

The exception could be angel funding for early-stage companies. Angel money - traditionally the source of the "proving" funds that create the conditions for VC firms to invest - are likely to radically slow their investment pace, according to two of the people I spoke with.

2. TARGET INVESTMENTS:

Deal flow is way up right now. VCs are seeing an awful lot of deals, due to the inabilitry of firms to find funding from banks via traditional debt sources. As in 2000 through 2003, VCs are being offered deals that are much closer to cash flow berak-even, or even profitable. Companies at an earlier stage may find themselves out of luck as more mature companies push them aside in the battle for funds.

3. EXIT POTENTIAL:

This is the real reason why VC investors aren't smiling. It doesn't matter how many great portfolio companies they have or will have, public offerings are off the table and most potential trade-sale acquirers are hunkered down and conserving cash. This translates directly into reduced incomes for VC partners, as the lack of exits eats into upside bonuses and extends fund timeframes.

There are some sectors that appear unaffected. Investments continue apace in cleantech and greentech, and there will continue to be acquisitions in cash-rich, recession-proof sectors such as security, and aerospace/defense. Several such deals have been reported in the past month.

WHAT TO DO:

Companies just starting out more than ever will need strong introductions into VC firms, solid revenue models, proof of demand, clear and concise (and highly-efficient) plans for marketing and distribution, tremendous management teams, and good advice.