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Thinking about the market & the impact on startups & VCs

I haven’t blogged about this topic yet but as i sit here recovering from a minor surgery I thought I would jot down a bunch of thoughts in no particular order (disclaimer: I reserve the right to change my mind since I’m on medication <g>)

1. Most VCs and entrepreneurs have been changing their strategy for awhile now actually. Yes, the last few weeks have been incredibly ugly but we have been telling our portfolio companies for the past 6-12months to raise a more, take on a bit more dilution, spend less and focus on revenue. And I know our firm hasn’t been the only one with this mantra.

2. This current downturn will be better than the last downturn in some ways because valuations and cash burn have been significantly less than the last time. But just like the last time there will be more inside rounds for the best companies and some VCs will not have the enough dry powder to fully fund their companies on their own. They will have to pick their winners and non-winners (how’s that for positive spin).

3. For the most part I agree with Kevin Ryan’s post about early stage companies looking for their first round of capital. The only problem will be less angel/seed investors than 6-12 months ago

4. I think we will see a lot of small exits this year. There a bunch of interesting small companies that haven’t raised a lot of money but have built valuable stuff. I’ve heard some good arguments recently that suggest we could see strong tech IPOs in the 2nd half of 2009. Right now, there are many good private companies generating profits that can’t do an IPO this year. More on this subject in a future post.

5. In the last downturn a lot of folks decided that they didn’t want to be entrepreneurs after all. They felt burned by paper options that didn’t work out and they sought comfort in large companies. I’m seeing almost the oppostite right now. More people are leaving big companies (by their choice or not) and looking for something that they can control or have more influence over. The only negative, i guess, is not everyone is built for a startup. It really isnt for everyone. We’ll see how that plays out.

6. The IPO market is closed shut in 2008. I’m a genius for this gem.

7. It will be interesting to see if the corporate venture folks will close up shop like the last downturn or stay open

8. Yes the market is fucked up. Yet there remains plenty of big problems, big opportunities, big disruptions and areas that require significant innovation. More people are online than ever & the mobile web is exploding. Industries are turning upside down. More and more of us are getting fiber to the curb. It’s a beautiful thing. And I remain a long term optimist.

9. I’m not a fan of Top 10 blog posts so i’ll leave you with my friend Brad Feld’s most excellent post – Focus on Things Under Your Control. Read it twice :)