If you talk to any VC they will tell you that they are continuing to invest in companies and they are open for business. They will tell you that these are the best times to start companies. They would not be untruthful telling you that but getting VC funding has gotten really tough. VC funding has gone down 50% since last quarter.
It fell off a cliff in 2001 and 2002 and it’s falling off a cliff now. (More on that in a second.) But there’s a difference: Funding levels, returns and the percentage of that money going to new ventures never got nearly as high as they did in the 1999-2000 years. So when we talk about steep drops, we’re talking about less of a bubble bursting and more of an industry correcting for more than a decade of scale and liquidity issues.
And make no mistake—it’s a steep drop. Venture funding fell by 50% nationally from the first quarter in 2008 to the first quarter of 2009, totaling to $3.9 billion, according to Dow Jones Venture Source. That’s the lowest total since 1998. PricewaterhouseCoopers and the National Venture Capital Association had it falling farther to $3 billion.
So if you are starting a company don’t count on being able to raise VC funding soon. You need to be able to weather the storm.