

How is the economy/credit downgrade affecting VC and Angel funding - dlitwak

I heard some rumors that VCs and Angels might start getting more conservative, and the spending spree in Silicon Valley might be coming to an end. However, other people counter that the money put into VC funds is committed over a long period so they can't just withdraw at the slightest sign of an economic dip, so it shouldn't have an effect.<p>Do you think the economy and specifically the credit downgrade will have any effect on the difficultly to obtain angel or vc money?
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pedalpete
The counter argument is somewhat correct. The VC fund is committed, and the
money has to be 'put to work' during the course of the fund.

However, if VCs fear that rough times are coming and that the companies they
have already committed to may have trouble raising a follow-on round, the VCs
may be more conservative investing in new businesses as they may be reserving
some funds for their portfolio companies.

Angels can do what they want with their money. This can be a good or bad thing
in the market. I suspect that part of the growth in Angel investments over the
last few years has been the risk/reward equation in the public markets.

The public markets were risky, were we going to have a double-dip recession,
are we at the bottom? or are we at a 'false peak'. It seems nobody really new
if the markets were going to go up or down over the 1-2 year period. Lots of
uncertainty.

There is always uncertainty in the Angel market, but the rewards opportunity
is much greater than in the public market. Therefore, Angels would consider
the company, the ownership they could get, and be in for the long-haul with an
opportunity at a great return.

Now, I have no idea if the credit downgrade or other financial situations will
have an effect on Angel or VC money. My best guess at this point would be that
VCs will be conservative over the next 6 months. I wonder if we'll see a
decrease in Angel investments, not because of the markets specifically, but
because they invested heavily over the last few years, and are yet to have the
returns to re-invest.

My 2 cents.

