This is soaking up a good portion of their time and money. With follow-on investment money from new sources difficult to raise in the current jittery environment venture capitalists are reserving a greater portion of their funds. If needed, they want to be sure they have sufficient cash to carry their existing companies and prevent them from flaming out. Portfolio companies that are not still perceived as potential winners are being put up for sale, or in some cases abandoned with the VCs walking away and letting the companies sink below the waves. As for entrepreneurs seeking early round investments, the search has become much more arduous.
Venture capitalists are increasingly selective and demanding.
Certain sectors such as Internet B2C companies, online exchanges and Internet consulting firms that once received extraordinarily high valuations are now financing dead zones. Optical networking, wireless, software and biotech are still attracting attention, but above all else venture capitalists are investing in companies that demonstrate clear potential to arrive at sustainable profitability with relative promptness. Business plans that speak of paradigm shifts, stickiness and market share without addressing how and when profits will be made are being tossed away. Even business plans that make the first cut are being subjected to a much higher level of scrutiny and due diligence. Companies that pass such a rigorous examination are subjected to much tougher deal terms by VCs.