Rough Ride Ahead: Buckle Up & Get Your Money Now (if you can)

"Thus far in the second quarter of this year, there have
been NO venture-backed IPOs.  There has never been a quarter where this
situation has occurred (since NVCA has been tracking such data). "
  — NVCA Mailing

I am pronouncing this cycle official dead at Q2, 2008. We have a general VC cycle that lasts 7-8 years and whose downturn generally lags the public markets by 6-9 months. With the credit crunch hitting in Q3 of 2007, I was expecting things to turn sharply in our business in Q1-Q2 of 2008. Just in the past month, term sheets seem to be disappearing and valuation dropping rapidly as firms begin to dig in. Groups that have been Lone Wolves for the past couple of years are suddenly looking to syndicate. Yes, things are about to get ugly for the next 2-3 years so brace yourself.

If you are close on terms with an investor, do what you need to get it closed now. If you have access to capital, draw it down and don’t touch it as it may need to last a while. If you have a high burn rate, you had best start aggressively cutting it now. If you are going into this cycle burning $1m/mo, you will have no ownership left by the time the cycle turns up and if you are burning more than $500k/mo, your cap structure is going to take a hit if things turn out as badly as I fear. In these kinds of times, breakeven is great (wait out the competition) and $100-200k/mo burn is manageable.

Ad rates are starting to fall so expect the carnage to start piling up in the coming year in the "ad-based model" world. The cycle is coming around and I don’t think rate cuts are going to holds things off much longer. I hope that I am being Peter (and the Wolf) and not Cassandra here!

Patient has flatlined Q2…

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