Sometimes, too many companies get funded.

 

IBM 2012 SmartCamp Global Finals were recently held at the Waldorf Astoria and included a full afternoon of discussions, including an informative panel on the state of venture capital and financing for startups.

Below are some main takeaways that you can use to make actionable decisions, from some of the top venture capitalist in the industry. Here are their perspectives on what is happening today, and what the future holds:

Mark Heesen, President, National Venture Capital Association

Main takeaways:

• Corporate partners/investors are now becoming more venture-driven and should not be ignored when considering financing.

Notable Quote: “The relationship between a VC and an entrepreneur might last longer than your marriage.”

Mark Radcliffe, Partner, DLA Piper

Main takeaways:

• There has been an enormous amount of innovation, and there are now more options for financing.
• Enterprise businesses are becoming significantly cheaper to launch than they were in the past.

Promod Haque, Managing Partner, Norwest Venture Partners

Main takeaways:

• The cost of getting product to market has gone down significantly. There is no need to have significant infrastructure – use the cloud. However, the cost of sales has gone up. Scaling your business is what takes capital in this day and age
• There are many “me too” companies because these entry costs have gone down.  Make sure to focus on your differentiators: what makes your product stand out in this “me too” world.
• Certain functions can be outsourced, but product management has to reside locally – always.

Notable quote:  “Sometimes too many companies get funded.” 

David Rose, Founder & CEO, Gust Founder; Chairman Emeritus, New York Angel Network

Main takeaways:

• 165,000 companies on Gust are interacting with 40,000 angels presently
• The change in technology costs is affecting the financing landscape. Entry costs have fallen dramatically, from $20 million to $2 million to $200k to $20k in only in a matter of a few short years.
• On the Series A cliff, with the drop in costs, entrepreneurs can go further without Series A, but it will be difficult to stand out , given the flood of innovation.

David Stevenson, Executive Director, Merck Global Health Innovation Fund

Main takeaways:

• Corporate investors have traditionally been too slow, but that is changing
• 15% of deals last year included a corporate investor
• 900 corporations have venture funds
• If there is a Series A crunch, looking into corporate investors may make sense

Some reasons for considering a corporate investor:

• They offer an immediate pipeline to sell your products
• Corporate investors are looking for enabling technology
• They offer instant validation
• They’re looking for diversification
• There are strategic components to partnering with a corporate investor

Some drawbacks:

• Corporate investors tend to offer less capital; they also tend to take a more conservative approach
• Liquidity issues may arise, as preferential rights for corporate investor is commonplace
• There may be high rate of turnover in the people you’re working with on the corporate side, whereas VC’s have a longer commitment.
• Some corporates give nice up-round, but limit exits.

Overall takeaway in the words of VC’s:

The recurring theme of the event was that entry costs are dropping exponentially and as a result, there is a massive wave of new products hitting the marketplace. If there is a prolonged shortage in capital resources, corporate investment may prove an excellent route to consider.  Overall, financing is becoming increasingly competitive: differentiation is crucial.  However, those with the ability to execute in differentiated markets will be able to succeed in the long term. Find your edge, and stay focused.