Richard Bagdonas has been building technology and service companies for 25 years. His hospitality platform company, Mahana, was acquired by Crunchtime last year. Now he's at work on a new medical health care startup, called MI7. That has put him back in the business of raising venture capital, and this time around, he says, things are different.
512tech: You have recently been through the fundraising process for your new startup. What has changed since the last time you raised money, and what are you hearing from other entrepreneurs about the changing funding landscape?
Bagdonas: "Several things have changed since the last time I raised money. The 'funding winter' that many people forecast is upon us - and has been for several months. Friends and colleagues last year kept telling us to 'close your round and batten down the hatches.' Boy were they right. I have spoken to over 70 Austin entrepreneurs since the Dark Ages of Austin Startup Capital was published in TechCrunch and they are all relating stories of being let down by deal terms as investors have become a bit more conservative.
An Austin entrepreneur with some big wins under their belt recently told me of the challenges they had closing their recent round. They were told no by Austin VCs and went to the West Coast to get their lead and the majority of their round closed. It was only when they had most of the round committed did FOMO finally drive an Austin VC to put some money into the deal. And they are not alone in that struggle.
Another deal which recently closed includes claw backs and ratchets that greatly reduce the possibility that the founders will be with the company to the end due to massive milestones they must meet. 'We took the deal but now we have a major hill to climb in terms of staff count, customer count, and deployments within each client. Otherwise we will be out and they will bring in a new team.'
This is not to say some companies aren't getting reasonable terms from investors. They are, however the amounts invested are reduced along with the accompanying valuations. Those with little-to-no traction and less than million dollar run rates are getting deals that when compared with expectations going into the round, are being cut by a third or more.
The winter is here and it is best to focus on surviving until the IPO market has some great wins to bring us to spring. Technology company IPOs have fallen to a 7 year low. As the unicorns get their horns cut off, we will see investors having to hold onto their shares in private companies longer which in turn has a trickle down to the smaller startups.
Money always finds investments, but the question on everyone's mind is how long will that money be seeing the shadow from tech's Punxsutawney Phils in Silicon Valley?"
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