As I mentioned last week, there’s been a significant decrease in the number of startup deals coming across my desk lately.
On the bright side, though, the quality of deals on accredited sites like AngelList is much higher (on average) than I’ve ever seen.
This is a common trend during tough economic times.
Mediocre startups that easily raised money a year ago are mostly out of luck today. Startups burning through too much cash used to be seen as fast-growing high risk, high reward investments. Now, they’re seen as liabilities.
The bar has been raised by this crisis. I’m certainly being more selective these days. Venture capitalists and angels definitely are as well.
This is not a time to settle for “pretty good” startup deals. Instead, you should be searching for truly promising opportunities with top-tier co-investors.
I’ve been invited to invest in at least six deals with top-tier VCs and angel investors in the last few weeks. Almost every one of those startups had very impressive traction.
So the message for today is simple: be selective. There is no such thing as a “sure thing” in the early investing world. Startups are raising at valuations ranging from $5 million to $20 million because they’re not mature yet. There will always be risks when investing at this stage. But in an environment like this, we can (and should) be extra choosy about which risks we decide to accept.