Moreover, many early stage business models carry surprisingly less downside risk because management is aware and has structured their business plans to generate profits early on in the process. But, even when all the right ingredients are there, the investment community is demanding far larger equity stakes for its dollars. Basically, the VCs have all the leverage in the world and the money is calling the shots. A year ago, entrepreneurs had weight and they won without ever having to accomplish anything. A humorous comment running through the Street is that too many bridges are turning into piers.
Bridge loans are simply out of favor.
When I make an investment, I don't want to prolong an inevitable failure, I want to give a company the capital necessary to take the vital steps to profitability. Bridge loans have been used to bait VCs, and unfortunately some have gotten burnt when the rollover financing didn't happen. This is not to say that the venture capital community is out of money. I think that the coffers are quite plentiful, but an inherent change is coming. In my arena, funds are raised based on past performance, so the new entrants in 2000 who underperformed will not be able to raise new funds.