Raising Capital in Rough Economic Times

One of our favorite Startup Houston readers asked a great question so I figured I’d give y’all my two cents: what will startups need to do to obtain funding in a frightened economy?

Straight answer: the same thing they would do in good economic times.

But seriously, there are different answers depending on what type of business each startup is in. The process does not change nor do the players. What does change is the scrutiny you need to put on your financial projections given changes to the market you are going after and the honesty you need to have with your own capabilities. Here are some things to keep in mind:

• Not all markets/industries react the same to economic downturn
• Venture capital is usually already committed and has a limited shelf life within a fund; it has to find a home
• Investing is a long term endeavor which should survive short term down cycles
• Some of the best returns are made in down markets by those who see arbitrage opportunities

I was involved in two different companies that both closed financings within days after September 11. Don’t let things outside of your control give you doubts. A good business plan going after a large market led by talented leaders almost always get funded.

Agree? What are your thoughts and experiences?