If you’re a startup business owner who’s been hoping to land some venture-capital investors to fund your growth and small business financing , think again. The figures are starting to come in for venture investing in the final quarter of 2010, and the picture isn’t pretty.
Venture funding has been spotty since the beginning of the year, when some industries saw venture investors’ interest wane. In the fourth quarter, many industries saw less venture capital flow their way.
The reason is revealed in a new report by VentureDeal on venture-backed mergers and acquisitions. With the IPO market still sluggish, selling a venture-funded company off is currently the most popular way for venture investors to reap a profit and get their money back in circulation — so they can invest it in new companies like yours.
Unfortunately, M&A activity slowed around the end of the year, the VentureDeal report shows. When that happens, it’s simple mathematics: Less money coming back to venture-capital firms in profits from previous deals means less money for new investments in startups.
In biotech, for instance, the value of merger deals sank 38 percent to $2.38 billion, with the biggest dip in pharmaceutical-company deals. The software industry saw deal volume sink 22 percent to under $2 billion. Even the hot telecom/mobile/wireless space saw less action, with deals down 17 percent to $87 million. That may sound like a lot of money circulating, but in the VC world, it’s not.
What’s more, many experts believe the VC industry has permanently shrunk in this downturn — that it’s not a temporary dip, but a “new normal” going forward in which traditional VC will play less of a role in business finance. The numbers coming in seem to bear this out. Dow Jones reports that in 2010, venture firms raised 14 percent less than they did in 2009, when the economy was worse off. Looking at just the fourth quarter, VC fundraising was down nearly by half compared with fourth-quarter 2009.
While getting a big, splashy VC firm to fund your company sounds exciting, the reality is that very few companies, mostly in high-tech, get the bulk of the venture-capital money. Think about Groupon, the mega-successful online daily-deal site, which raised a record-breaking $950 million in venture capital in mid-January, and is now headed toward an initial public offering. A typical small business has only a very slight chance of getting in on this kind of funding.
Even if you could score some VC money, you might not want to take on private investors. In that case, you no longer own your business outright — you now have other owners on board with their own ideas of how the business should be run. A lot of small-business owners don’t want to give up that ownership stake, anyway.
If you’d like to talk about realistic options for securing the capital your business needs to grow, contact the small business financing experts at LenCred. We’ll be happy to help you with finance vehicles with a proven track record, such as unsecured small business lines of credit and small business loans.