Thursday, February 12, 2009

Tech Start-Ups Teetering During Tough Times

Ask anyone -- virtually anyone (no matter what they do, no matter how much money they make -- or no longer make) -- and they will tell you how brutal it is out there these days. Certainly, that ain't great for tech start-ups in need of funding. Who can forget Sequoia's "Good Times R.I.P." spiel to all of its CEOs from Q4 last year? That made the rounds to anyone and everyone in the tech business late last year -- and the times have only significantly worsened since. The essential mantra -- "cut the burn or die!"

Well, many tech start-ups are dying, as VC funding has hit a wall. VC funding for U.S. start-ups in Q4 2008 dropped to $5.5 billion from $7.9 billion a year earlier (or roughly 30%). And, it feels even worse out there than that. Another measure -- in January 2009, the average M&A sale price for U.S. venture capital-backed private companies was $5.7 million -- down from $44.2 million one year earlier! If my math is correct, that is a $38.5 million differential -- and a very bad one -- for venture capital investors and start-up employees. I can't even figure out the % drop, but suffice it to say it isn't a pretty one.

Even start-up ubiquitous Foosball tables are being sold to make ends meet ...