The colder climate brings a risk level that's disconcerting even by the standards of VCs, who pride themselves on swinging for the fences. A lot of VCs will not invest until they know that round will take the company to a cash flow positive situation. The compressed funding means companies are funded in larger rounds, but at later stages. Under the new VC deal, the average startup founder is forced to give up a greater stake in the company and show profitability earlier in its overall development, compared to previous years. The valuations have dropped and the money is more expensive.
Startups have to raise twice as much at half the price.
The added leverage for VCs has helped companies such as Delta and Paradigm. Latham and Mundie say some the movement was a result of deals held over from the fourth quarter, when companies' focuses shifted to year-end reports and the holidays. But they also said they benefited from having less competition this year than last, when VCs were forced to accept terms less favorable. Paradigm finished the year strongly as well, moving from a 17-company portfolio with seven lead positions in the first quarter of last year to 20 companies with 10 lead positions and 11 board seats at year's end. Another shift in the venture world has been in industry preferences.