VC groups say the slowing economy will make fundraising more difficult.
Financial Times – Aliya Ram and Tim Bradshaw in London
FEBRUARY 2, 2019
Venture capital investors are warning their start-ups to hold more cash as worries about the global economy and stock market volatility threaten to trickle down into private tech financings.
“We are certainly telling [entrepreneurs] they need 18 to 24 months of runway right now, to make sure they can weather any situation,” said Danny Rimer, a partner at Index Ventures.
Just a year ago, Mr Rimer would recommend companies to hold enough cash to cover nine to 12 months’ worth of expenditures and delay raising new funds if they thought they believed they could achieve higher valuations in future. Now, he suggests start-ups seek more capital sooner rather than later, and at more modest valuations.
Ten years ago, Silicon Valley venture firm Sequoia sparked concerns about a tech bubble with a presentation to its entrepreneurs declaring “RIP good times”. Sequoia’s presentation, which was sent out to portfolio companies at the height of the financial crisis in late-2008, warned that any start-up without a year’s worth of cash in the bank could find itself in trouble as the economy slowed.