The piggy bank should now be the primary source of funds for most tech entrepreneurs

The piggy bank should now be the primary source of funds for most tech entrepreneurs

We recently covered the trials and tribulations of the Venture industry and hypothesized that perhaps it is curtains for the VC industry as we’ve known it over the past few decades. Well, here’s some more on the same. In a new report published by Dow Jones’ VentureSource, new investments are down 50% . In Q4 2008, investments were already down 71% from a year ago.

The number of new IT deals is plummeting. They’ve gone from 370 deals in Q4 to only 231 deals in Q1 2009. Moreover, even though the number of deals is substantially more than half, the amount of funding received by these 231 companies in Q1 is only half of what was invested in Q4. This also means that deal sizes are getting smaller. This gels pretty well with my earlier submission, where I had argued that capital is no longer a very important component for many IT companies.

This is not just about IT companies. It’s an across the board hit for venture capital. Surprisingly, hot and relevant areas like Clean Tech are also impacted. A paltry $159 million was invested in Green/Clean tech companies for all of Q1 2009, down 59% from last year.

It’s not just investments which are getting smaller, as this article in the Wall Street Journal explains, funds are cutting back on the amount of capital raised because they can no longer secure the kind of funding they once had access to via their LPs. If funds are getting smaller, this means there will be less money available for venture investing for the next many quarters; this is not just a short term change.

If you’re an entrepreneur, you should pay close attention to this shift. Now is not the time to build a business plan that is heavily dependent on venture capital. Go for the tried and tested self-funded or minimally-funded models.

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