VCs Turn Focus to Established Companies

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VCs not writing checksVenture capitalists are spending their money on more established companies rather than young startups, according to data from the first quarter of this year.

According to the?latest MoneyTree report–which was put together by the National Venture Capital Association and consulting company PricewaterhouseCoopers–there were only nine seed-stage investments in the Bay Area during the first quarter of this year–a 67 percent drop from the same period a year ago. Later-stage investments were up 17 percent from the year-earlier period, the?San Jose Mercury News?reported.

With so many companies launching due to lower barriers to entry, VCs are looking to invest in those that already have a solid customer base and a good market share,?the?Mercury News?reported.?”There is a lot of money being thrown into companies to scale. It’s turning into a war, and you had better be well funded and well armed,” Jeff Grabow, a venture capital expert at San Jose-based financial services Ernst & Young, told the outlet.

It is not just VCs who are a bit more risk-averse as of late. In an interview with?Inc.,?David Rose, founder of the New York City-based investment group New York Angels, said that even angels are looking to invest in companies that have proven themselves in the market:

Given the reducing costs of starting a company–you can do it for a few thousand dollars starting online–the bar has been raised an enormous amount. When it took $20 million to get a company started or even $2 million, the only way to start a company was to get the money first, but now the cost of starting a company is so low that the expectation on the part of angels is that you will have already started it. Angels at this point no longer fund ideas. If you just come in with an idea–don’t even try.

?We will look for something–some proof, some traction that you can actually create something that somebody wants. That?s typically where angels come in. They come in after you have the company started with your own money and money from friends and family, after?you have some proof of traction or proof of concept, and then we take the first outside risk.”

Read original article at Inc.