Who said that funding wouldn't be available to startups in the downturn?
Balderton Capital, which was formerly Benchmark Europe, made $140mn
when portfolio company Bebo was sold to AOL and a small fortune when
another portfolio company, MySQL, was sold to Sun. Its other
investments have included Betfair, the UK's most popular betting
exchange, and Yingli Solar, a Chinese solar company that is now public.
At a time when other VC firms are finding it hard to raise capital, Balderton has raised a £285m fund that will be used to invest in businesses created during the downturn.
Barry Maloney, Balderton's general manager, told the Financial Times that now is a good time to be investing in promising startups: "Part of the reason for raising this fund now is to take advantage of the opportunities that this stage of the cycle throws up."
Maloney, however, did note that there are "significant difficulties" in raising new money (although Balderton had pulled in most of its target within 2 months) and does expect that there could be "some casualties" amongst its existing portfolio, which is about 80 companies strong.
But Balderton's ability to raise a substantial new fund for technology and media investments and its optimism that great companies will be able to emerge and innovate even during troubled economic times is good news for entrepreneurs in Europe, where the venture capital market has always had a reputation for being tighter than in Silicon Valley.
But that doesn't mean that all entrepreneurs should pop open the champagne just yet. The days of easy venture capital are still likely a thing of the past for the time being despite Balderton's impressive raise.
First, it's likely that at least some of Balderton's capital will be targeted at later-stage deals. I wouldn't expect to see a large portion of the funds going to Series A rounds for the type of speculative 'me three' startups that were funded during the height of this last boom, for instance. The 'early stage' companies Balderton funds will probably be more 'mature' than a lot of what was being considered 'early stage' just 6 months ago in terms of business models, technology development and traction. Or as Techcrunch's Mike Butcher puts it, pre-revenue Web 2.0 startups will effectively be dead to Balderton.
Given that Maloney himself does not anticipate a window for VC-backed IPOs for 18-24 months, it makes sense that he and Balderton's other managers will be looking for more lasting investments; companies with substantive technologies and business models that have the ability to make it through and emerge in a strong position.
Second, it's likely that the criteria for funding will be more demanding. Not only does this part of the business cycle lend itself to a different kind of business, it lends itself to a different kind of entrepreneur. Expect firms like Balderton to fund more experienced entrepreneurs who have track records, pedigrees and experience in tough climates.
Despite the caveats, I agree with Maloney's statement that "We are about to enter a very interesting time for new investments, if not for exits."
2009 could see some real innovation and the next round of great startups founded as entrepreneurs get back to basics and the venture capitalists who fund them get back to more rigorous investment criteria. Those two things don't in and of themselves produce innovation but they do help separate the wheat from the chaff, which is an important part of the process because it helps allocate funding in a more effective manner.