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Everybody knew that the economic crisis would have a profound impact on VC-backed technology startups. Many that had been able to raise lots of funding when times were good focused on growth instead of revenue, grew headcount rapidly and planned for M&A levels and IPOs that were a part of an economy that is now a fading memory.
With many VCs unwilling or unable to continue supporting portfolio companies that haven't found a way to support themselves, it was only a time before waves of startups started closing their doors and selling themselves at firesale prices as they ran out of cash.
M&A activity and investments in the interactive ad industry declined in 2008 according to a new report issued by Petsky Prunier.
Deals were down 29% and acquirers and investors spent five times less than they did in 2007.
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.
With the New Year right around the corner and this being my last post for the year, I figured it was time to go on record with my predictions for 2009.
The last half of 2008 has been interesting and changed the dynamic in the internet economy as financial markets collapsed and the global economy faltered. This will set the tone for 2009.
Last month Facebook apparently offered Twitter $500m worth of its stock to buy it. Mark Zuckenberg is a known fan of Twitter, having described its ‘model’ as ‘elegant’ at this year’s Web 2.0 Summit.
In short, I (and many others) have observed a major problem with venture capital in recent times - too many VCs with too much money chasing too few "good" opportunities.
Playfish this week announced a whopping $17m funding round, led by internet-focused VCs Accel Partners and Index Ventures.
In doing so, the London-based developer of games for social networks will have provided encouragement for other startups seeking funding. While this deal has been in the pipeline for a few months it proves that the VCs aren’t entirely hunkering down.
Putting aside the reasons why I personally think Twitter is a waste of time, the real problem for the site is that it doesn't yet have a business model.
While there are some who still cling to hope (and there are still some in outright denial), it's clear that most of the people involved with the world of internet startups have accepted the reality of the global economic "downturn" and understand that its impact on the industry will probably run deep and it will probably be prolonged.
By almost any measure, internet entrepreneurs Janus Friis and Niklas Zennström achieved more business success by the age of 40 than most entrepreneurs could hope to achieve in a lifetime.
It wasn't too long ago that we were told widgets were the marketer's recession survival tool and that Facebook's application platform, which allows developers to build widgets for the social network's users, heralded the ushering in of another "new economy."
My how quickly times change.