How will the demise of Bear Stearns and the concomitant credit crunch affect the financing options of entrepreneurial growth companies? "[A] cash drought of unknown duration and severity is under way," according to Tom Abate of the San Francisco Chronicle.
Abate interviewed several venture capitalists and board members of start-up companies in the past week and says they are generally uncertain about the immediate future of start-up financing. One serial entrepreneur told Abate that he has been in touch with several people who were putting together financing for a fledgling firm just to make sure that the transaction was not scuttled by the current jitters.
"Although logically the turbulence in New York's money markets should not affect such a tiny deal in Northern California, the fact is that the financial ecosystem of Silicon Valley is much like the water cycle - lake water evaporates and rises to form clouds and rains down to fill the lake again," Abate explains.
"In the startup economy, the lakes are the venture capital funds that raise money to create startups, which then go public or get sold to a bigger firm. Confidence takes the place of evaporation to keep the cycle going. At the moment, however, confidence has all but evaporated." (To read the complete article, click here.)
What do you think? Are you out trying to raise money for a start-up? If so, what has your experience been? And how long do you think the current cash crunch is likely to persist?
Last updated: Mar 18, 2008
MIKE HOFMAN was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City. @mikehofman