A “Series A crunch” in Silicon Valley may be inevitable, according to PandoDaily, wherein startups previously laden with cash courtesy of a surfeit of angel investors in recent years are now cash-strapped, as bigger venture capital firms are unwilling to bet on smaller startups as they seek rounds of Series A funding.
Replace rum with dollar bills, and you’ve the equivalent of Jack Sparrow’s Startup Hell.
PandoDaily says the Valley “got here by entrepreneurs having too much of a good thing.” That the real consequence “of this explosion in seed funding” is a dearth of investors willing to lead Series A funding rounds. Others have been, let’s say, less sensitive to the crunch.
If Baltimore-minded investor Tom Kuegler could say “I told you so,” he just might, as this is something he has predicted for some time.
“Within the next two years you’ll see a bubble burst in the angel world,” said Kuegler, founder of Silicon Valley-based Wasabi Ventures, a venture capital firm that invests in early-stage startups and has an office in Baltimore. While what Kuegler told Technically Baltimore in August didn’t make it into Kuegler’s Q&A, the message he has is awfully prescient now.
“[A] lot of people are throwing money at a lot of early-stage companies. A good chunk of those companies are not going to go anywhere. So they’ll get to a point when they need more money and nobody will give them any money. So those angels that put in their money are going to get zippo back, and that’s going to leave a bad taste in the mouth of some of those angel investors who haven’t been in a long time.”
As Baltimore observes this new development in the Valley from afar, it’s worth noting that venture capital — availability of it, and access to it — is one of this region’s struggles, period.
“We don’t have quality, early-stage capital,” said Frank Bonsal III at this week’s Startup Grind. Bonsal, a general partner with New Markets Venture Partners who has been involved with investments in StraighterLine and Moodlerooms, said the problem with venture capital is that 80 percent of the dollars “are with very few firms,” while the other 20 percent “are with people like us,” with a pot of less than $150 million to dish out.
For startups forming here, that means creating a product or service for which there are paying customers is ever important, a point organizer of the Baltimore Lean Startup Group Sarge Salman hammers home at all his Meetup events.
At ReadWrite, Dan Lyons makes an important point for what he hopes this Series A crunch will lead to:
Meanwhile our country is facing a crisis because we have a shortage of students in STEM — science, technology, engineering and math. … So maybe now all those people who have been playing “entrepreneur” will go get actual jobs making actual products and gain some actual experience. Maybe they’ll go back to university and study medicine, or engineering. [more]
Maybe Silicon Valley needs something like the Digital Harbor Foundation, which is having high school students square off in cybersecurity and other technology challenges through its STEM League, as well as finding them paying jobs doing web design and development through its STEM Engine.
Or maybe just another photo-sharing app. Now back to the good part.