In an article published yesterday (Start-Ups Will Keep Struggling in 2010), the Wall Street Journal reported that startup funding will remain tough to find in 2010.
The major problems:
- Most entrepreneurs use personal savings or contributions from friends and family, but personal wealth – often tied to the value of homes or stock portfolios – has not bounced back from the economic downturn.
- For both conventional bank loans and those insured by the Small Business Administration, entrepreneurs most show (a) that they have invested a significant amount of their own money and (b) solid cash-flow projections.
- During the first half of 2009, the total value of angel investments fell 30% compared to 2008; 2010 is expected to continue at the 2009 level.
- While venture capitalists are continuing to invest, they typically have been protecting later-stage companies already in their portfolios rather than funding startups.
The minor bits of good news:
- While angels are investing less per deal, the total number of deals increased during the first half of 2009 over 2008.
- Stimulus-related measures may increase SBA loans from 1% of all small-business lending to between 5% and 10%.
* * *
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.