Venture Capital in Recession

As you might imagine, the recession and implosion of the credit markets has had just a tad of an effect on the venture capital and angel investor markets this year. For those considering start-up businesses or expansion, the forecast is decidedly mixed.

I don't have to tell you that the implosion of 2008 and 2009 resulted in the near strangulation of many niches of the financial markets. Oddly, venture capital investing was not one of those markets that was rocked to its core. Don't get me wrong. Things were bad, but the downturn in venture capital investing was in the teens as a percentage instead of a much larger number as with most markets. Angel investing, sadly, was crushed for the most part with rates dropping by 30 percent or more.

Well, enough about the past. What about the future? After all, we've all read and heard we are now in a recovery from the Great Recession. To say it is a tepid recovery might be a mild understatement. The simple fact is the financial world is still at a stand still. For example, more banks have failed in 2009 than all of 2007 and 2008 combined. That doesn't make for a solid platform from which to launch 2010. So, what can we expect?

2010 is going to be a brutal year for start-ups. Venture capitalists are risk adverse at the moment, which means few will be interested in taking on the risk of a brand new business. Unless you have a proven record turning start-ups into big winners, don't hold your breath on VC funding. The same goes for angel investing. The year is going to be about family and friend investing or simply waiting until things turn in the venture capital markets.

What about existing businesses looking to take that next step? VC companies and angels are going to be much more receptive towards inquiries from companies that have a history. That doesn't mean they will be handing over money right and left, but it means you have a chance. As usual, it comes down to whether your idea seems plausible to them at a time when things are very tough.

The venture capital markets are not dead. Not even close. That being said, there are a lot of fish competing for the food in that market. Things will eventually loosen up, but it may be some time before that happens.

Thomas Ajava writes about venture capital funding for VentureCapitalInvestmentFirms.com where you can find venture capital investment firms for your start-up or existing business.

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