When stock market prices drop, start-up investors get cautious about dealmaking because they often rely on big gains in initial public offerings to generate returns, which they then turn around to invest in more start-ups.
“When we first started, ‘profitable’ was a bad thing for a VC because that meant you weren't growing enough,” he said. “We had a couple of months of cash-flow positive, and I couldn’t bring that up. Now, it’s one of the first things I mention.”
Start-ups still searching for users have returned to more cautious fundraising expectations. Spective Inc. is seeking up to $1 million at a $3.5-million valuation. Co-founders said they purposely set a more reasonable valuation than the recent $7-million norm for start-ups at a similar age.
Start-ups that haven’t progressed past bullets and sketches face the toughest hurdles. Dave Young, a Santa Monica-based attorney at Cooley who meets with about a dozen start-up entrepreneurs at that stage each week, said he’s now more selective in who he helps because the bar to excite investors has been raised.