From Where Will the Innovation Come?
Thomson Reuters reflected a 70% drop in total funding from the previous year in their Jan 2009 Venture Capital survey (thanks to PEHub for posting the data http://www.pehub.com/32973/vc-investment-pace-gets-even-worse/) . You could chalk this up to a monthly blip due to the current economic crisis, but total VC investments have been trending downward for a while now. Through no fault of the Venture community, they are holding onto their money due to market uncertainty and issues from being able to raise new capital. While many people may not shed a tear for VCs, this unfortunately creates many problems for the intellectual economy.
First, we risk the health and incubation of current startups that will be restricted from reaching critical growth. Maybe resource cuts, inability to hire new talent or simple default will delay the maturity of many startups looking to make the leap in their business model that allows them to scale with their new product offering. This creates a dead zone for fledgling companies 1-2 years out. Secondly, many new start ups will not receive initial funding and maybe never launch. This adds to the dead zone but on a longer time period out. This represents lost jobs, lost intellectual property and lost advantage in the global marketplace right after we are “supposed” to be coming out of this recession/depression. This simply creates a further weakening for any recovery. However, I doubt this is only a problem in the US so start ups around the world are probably suffering a similar fate. What are you seeing in your markets?
Comments
Jeremy it has been the same here in Canada. Entrepreuners need to change their expectations about their ability to raise capital. The days of loosing 10 Million a year on 10 Million Revenue are on hold if not over.
Posted by: Siddharth | March 13, 2009 8:12 PM
Siddharth,
Thanks for posting the update from Canada.
Unfortunately, I have seen more than my fair share of start up examples like you have mentioned. However, while many of those ideas were just ill-conceived, some needed a bit more time to mature. I only hope we are able to support those good ideas long enough to become "the next great thing". I would almost be happy to see marginal business models funded again since that would signify that money was flowing.
Posted by: Jeremy Kloubec | March 19, 2009 3:58 PM
I believe that the so called 'recession' state is present partly because there has not been significant innovation for a while in the industry for around 7-9 years.
I'm not refering to technology innovation but also to business innovation.
So the wheels will move when...
#1 Midsize and bigger companies will plan, prepare and execute better business models and address.
#2 Global governments acting as a community (with a single mission) will impose common rules of business that must be followed. This will come after small and midsize companies globally come out of the slow state.
#3 Business models envision and act to become solution oriented than product oriented.
Posted by: Sandeep Dedage | April 7, 2009 2:09 AM
Sandeep,
That sounds interesting, but very ambitious. I hope we don't have to wait for global governmental collaboration before seeing funding and the resultant innovation pick back up. Thanks for the thoughts.
Posted by: Jeremy Kloubec | April 8, 2009 8:42 PM