The past few days have seen plenty of back-and–forth on commentaries by VCs about the impending doom and gloom for entrepreneurs and the capital raising scenario. Presumably, they are going to have twin challenges of drawing down on the commitments made by their LPs (limited partners) and meeting the needs of their existing portfolio companies who are now going to find it harder to raise capital or get liquidity events. This means that new funding is going to get hit big time. And some funded companies will also see challenges unless they are profitable.
For entrepreneurs, they need to forget about the craziness around and just focus on the business and market. The stuff that’s happening has little or no impact on the business of most early stage companies — in most cases, their revenue base is too small to see any negative impact from “market conditions.” So, any sales person giving market slowdown as a reason for not meeting targets needs to be given a talking to!
I also think this is a great time to get alternative / disruptive ideas to consumers and businesses. Everyone is much more receptive to discussions about solutions which provide better RoI. (And without a simpler, cheaper solution, entrepreneurs don’t really have much of a chance anyways.)
What I find hard to fathom is the VCs who are re-negotiating existing termsheets to drive companies to accept lower valuations. For the entrepreneur, it is like getting into a marriage with a gun to one’s head. If one needs the cash, there is little choice to accept the lower valuation since there is no alternative. But if one can doesn’t need the cash, I would recommend walking. Valuations are not based on what the Dow Jones is currently trading it. Ventures will not see exits for 3-5 years in most cases, so what’s happening today in the world is irrelevant. I do get the sense that some investors are using this opportunity to try and get assets on the cheap in a manner which is not quite right.
So, for entrepreneurs, the message is to keep the focus on building the business — just as a BSE Sensex at 21,000 doesn’t really help one much, neither does a 10,000 index negatively impact anything other than some sentiment. Get past all of this and go get customers and generate cash the old-fashioned way.