Starting a business that provides services over the internet eventually requires access to outside capital. Web startups need funding to expand their online delivery platforms.
Reports of capital shortages occasionally arise, but seldom deter new entrepreneurs. Recently, the Wall Street Journal ran an article conveying that strains are starting to arise for web-based startup corporations raising capital. The story focused on Silicon Valley companies that are resorting to bridge financing or accepting lower valuations for funding. Venture capital firms are reporting difficulty in raising new money from investors.
Perhaps a little slowing of capital flow is reasonable. After all, cash has gushed into web startups in recent years. The real question is whether an actual money crunch is on the horizon. That apparently isn’t the case, according to angel investor responses on Twitter to the Wall Street Journal piece. Despite some agreement about a modest decline in valuations, plenty of available cash was reported.
Funding is still available, but brand new corporations appear unlikely to find widely open doors from the venture capitalists. Instead, early-stage companies are more likely to rely upon angel investors. They can likely still turn to venture capital for expansion in future stages.
If valuations are a concern, angel investors might face reduced expectation of return on investment. However, perhaps they still have plenty of cash for startups because they have declined participation in new venture capital funds. The Wall Street Journal cited a report from the National Venture Capital Association that venture fundraising fell to its lowest level in eight years for the third quarter of 2011.
While the venture capital industry pauses to manage existing investments in web startup companies, angel investors seem eager to approaches by innovative new corporations.