Valley Update - Funding, Capital Efficiency, Planning and Areas of Investor Interest

Spent the evening yesterday at SVASE's "Raising Capital for Early-Stage Technology Startups" event and I thought it would be worth sharing some of the thoughts from the three panelists who shared some great insights! They were

• Susan Mason, General Partner, ONSET Ventures
• Matthew Price, Sr. Associate, Nth Power
• Carol Sands, Founder & Managing Member, The Angels’ Forum and The Halo Fund

In no particular order, some of the key takeaways - all of which make great sense:

• "Capital efficiency" is paramount in this market. Meaning that the less cash you have to raise to get to breakeven/cash flow positive the better it is for investors, founders, management and employees. And therefore the cash you have also needs to be managed in the most effective manner possible.
• Yes, lots of portfolio companies have been through significant restructurings and downsizings to make the cash last and become more capital efficient. In many cases this has been a great thing as it has forced people to look at their businesses much more critically. This has been very timely as we've seen startups finding the external market has caused them to fall 6 - 9 months behind on their plans, though many are now getting back on plan.
• There will be a big shakeout in the VC business, in particular with those who have not raised additional funds or capital in the last 2 - 3 years (to be clear, all the above HAVE raised capital and are not in this situation!). The ripple effect on their portfolio companies will be substantial and ugly.
• We're seeing a return to real "sweat equity" with startups - which is a good thing!
• Good VC firms are still investing. Many are also looking much harder at how that equity gets leveraged or enhanced - partnerships, channels, even grant and government monies (which Silicon Valley companies have traditionally ignored but I see many European companies pursuing quite successfully)
• Silicon Valley startups have also not traditionally sold to the government - rethink that!
• Your financial plan needs to assume that not everything goes perfectly. In fact it needs to presume that many things will not go according to plan. Therefore always take as much money as you can now because you never know. Your financial plan is not just about having gas in the tank, but about "de-risking" the business. When you have cash you have options and can manage things going wrong. When you don't you have no options. None.
• If you're very early stage look at pre-seed convertible loans and other creative financing strategies - a bridge loan to a syndicated financing round etc (but as I've said before, make sure its a bridge, not a pier!). Get your suppliers and customers to help finance the business. 

Susan Mason, particularly, also did a great job of pointing out some market areas and opportunities she thinks are very interesting for investors:

• Monetizing data real-time
• "Everything" as a service - SAAS, Cloud Computing, PAAS, etc
• Enterprise 3.0 - for example, free, ad-supported network management tools
• Security as a service
• Financial payments infrastructure
• Internet gambling - when it becomes (inevitably) legalized here as it is in many other countries
• Virtual goods-based companies
• Mesh sensor networks with recurring revenue models
• Medical devices that speed up diagnostics or provide custom or personal medical solutions via your genetics