I was already planning to write this post today before I knew that the markets would open down sharply (Nasdaq down almost 3% as of 11:30am Eastern). While we are still well off the 52-week lows this shakiness in the markets has very real reasons: Europe has been a mess for a while and the US is rapidly becoming one. The underlying reasons are deeply structural (i.e., we are not talking small fixes) and the existing politicians — and more profoundly — political systems are increasingly seen as not up to the task.
At first blush it makes little sense for early and even growth stage company financings to be driven by the cycle in the public markets. After all, if you are doing a Series A, B or even C financing it is usually with the expectation that the company will be private for at least another 2-5 years and possibly longer. So the things that should matter are your expectations about the company’s growth prospects and valuations in the future. Unfortunately, as it turns out people’s expectations about both of these are largely driven by current market performance. And that actually turns out to be fairly rational when you don’t see path towards how or why things should get better.
Now I don’t have a crystal ball. The markets might well bounce around quite a bit and there may not be a double dip recession. But we are never dealing in certainties here, only probabilities. And I believe that the probability of a dip that could be as big as 2008 or even bigger has gone up tremendously in the last few months. So if you are running a company that needs to do a venture round soon, I highly recommend that you get it done ASAP as opposed to optimizing for price.