Archive for the ‘Capital’ Category

Post credited to Jeffrey Bussgang, at Inc.com

When it comes to funding young companies, the investment community is constantly raising the bar. Here’s why.

About 10 years ago, I entered the venture capital business after being an entrepreneur. My new partners warned me that my “bar” for new investments would get higher over time.  In other words, the criteria to make a new investment or clearing “the bar” would get stricter with time as I developed more experience.

They were right. The notion that investors get wiser and more selective over time has become common wisdom in the industry. But there’s something very new going on in the last few years, something very striking.  Simply put, when it comes to funding young companies, the investment community’s collective bar has recently gotten higher– much higher.

The entrepreneurs I speak to are feeling it every day. When they pitch their new idea to investors, they are told to build a prototype first. When they build the prototype, they are told to go get customers. When they get customers, they are told to show engagement metrics. When they show engagement metrics, they are told to run some monetization experiments. When they run monetization experiments, they are told to prove scalability.

Why is the new investment bar so high today? Isn’t there plenty of euphoria to go around with the IPO market returning, marquee acquisitions (e.g., Instagram for $1 billion) and the impending, earth-shattering Facebook IPO? I believe this new phenomenon of an extraordinarily high bar is an outgrowth of three related forces: (more…)