Funding for Startups Likely to Tighten Post Facebook IPO

By Uloop Editor on June 6, 2012

Over the past three years, the technology startup world has been sucking in more and more VC money.  In the first 9 months of 2009, venture capital firms shelled out $2.3 billion, and in the first 9 months of 2011, that number grew to $3.9 billion distributed among over 850 companies.  This isn’t to say that funding has been easy to find, but it does show you the tremendous amount of money going into technology-based startup companies, even in the wake of a shaky economy.

Photo by dpstyles on flickr.com

The media-fueled hype behind some of these startups has been huge.  Facebook’s IPO was one of the most widely reported stories in business this year, and anticipation for the social network’s stock was high for weeks.  In spite of the excitement, the stock has since fallen flat.  Two other notable IPOs in web based companies (Groupon and LinkedIn) have been erratic at best, leaving many to wonder, “has the Internet bubble burst again?

Most recently, Paul Graham, the co-founder of Y Combinator, and one of the most influential voices in Silicon Valley raised his caution to the companies he helps manage:

If you haven’t raised money yet, lower your expectations for fundraising. How much should you lower them? We don’t know yet how hard it will be to raise money or what will happen to valuations for those who do. Which means it’s more important than ever to be flexible about the valuation you expect and the amount you want to raise (which, odd as it may seem, are connected). First talk to investors about whether they want to invest at all, then negotiate price.

Graham’s message might just be generally good advice, but in the wake of the last few weeks’ events, it seems more than coincidental.

What can student entrepreneurs expect?

As programs for student entrepreneurs and business accelerators have been popping up across the country, the last couple years have been a great time for budding entrepreneurs.  Companies have been valued highly for very small tangible results, and investors have been more free than before.  Look for this to slow down.

It may not be the bursting of the bubble yet, but one more blow to web tech, and it might mean a major slowdown.  What do you think?  Are we seeing the “.com” bubble all over again, or is it too early to tell?

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