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Funding for startups

Valuation Deflation in Startup Land

Private optical networking companies have seen their valuations plummet between 50 percent and 90 percent in the past year and are struggling to find financing in a tight venture market, according to a report published this month by Light Reading's subscription research service, Optical Oracle.

The report, compiled after detailed conversations with more than 20 venture capitalists and an equal number of startup executives, shows a growing rift between investors and the entrepreneurs they once funded. Many startups, faced with high costs and a sleepy telecom market, must raise new funding to survive the slowdown. Investors, on the other hand, are reluctant to pump more money into crowded markets and are requiring substantially larger pieces of companies in exchange for capital.

For example, startups such as Équipe Communications Corp. and Appian Communications, two companies funded at valuations close to $400 million in 2000, have likely fallen to half that value in the current market, according to those interviewed.

The fall in valuations follows a precipitous drop in the world financial markets in conjunction with the substantial decline in the market for telecommunications equipment.

In many cases, the drop in valuations has caused extreme dilution for the shareholders of startups seeking additional funding. To cite one instance: BrightLink Networks Inc., which had a post-money valuation (the value assigned after a company has received funds) approaching $500 million during a funding round last year, was forced to go back to the market this year and accept a pre-money valuation (value before investment) of $60 million in the next round of investment, according to those familiar with the deal.

Many experts see the current climate as causing friction between investors and entrepreneurs -- and predict that many companies that don't raise adequate funding will go out of business.

“Anybody that raised money last year at an inflated price is probably going to hit the wall this year,” says Tim Kraskey, a partner at YankeeTek Ventures.

The report, which includes estimated valuations and investment histories of 57 private companies, in addition to a prognosis for the future of optical capital, is available to subscribers of Optical Oracle. — R. Scott Raynovich, Executive Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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______ 12/4/2012 | 8:07:02 PM
re: Valuation Deflation in Startup Land
i hear it closer to 1/4 previous valution?
_____ 12/4/2012 | 8:06:55 PM
re: Valuation Deflation in Startup Land Ok "______", you are a LOSER with a big "L" on your forehead.

For 1 year now I have been posting on LR using the name "_____" and you come along and add one "_" to your name thinking people will think your postings are coming for me ("_____").

Well it aint going to work in my house buddy. So go on, keep using my trademark name. Bet you wear your wife's girdle when she's not home. Get a life Loser! And get back to work!

Regards,
_____
jmd 12/4/2012 | 8:06:49 PM
re: Valuation Deflation in Startup Land GǣIn many cases, the drop in valuations has caused extreme dilution for the shareholders of startups seeking additional funding.Gǥ

Not that long ago the name of game was execution. Everybody knew building optical networking systems was a great plan. All you had to do was assemble a good team and you easily found mega-funding. Simple execution was the name of the game. When a technology is exploding, execution is called for G get in on the game even with a me-too strategy.

Then along comes the Malthusian check.

At this time innovation is called for, not execution. Innovation is needed to differentiate yourself from competition, define new markets and perhaps even introduce a watershed technology. There is no other choice. In nature when a species fails to adapt to changes in the environment it perishes and is replaced by those that do. The Darwinian process is at work. Right now people are not only diluted and worried about their investments; they have found themselves to be in a game of survival.

GǣMany experts see the current climate as causing friction between investors and entrepreneurs -- and predict that many companies that don't raise adequate funding will go out of business.Gǥ

ThatGs a prediction? Well, I predict that companies that donGt generate revenue will go out of business. Can I be an expert now too?
_______ 12/4/2012 | 8:06:37 PM
re: Valuation Deflation in Startup Land Don't be so ticked off. You should be proud of the fact that you've started a trend. Imitation is the best form of flattery. Isn't it?

We now have three members in this exclusive club:

_____ is the original
______ is the the imposter guy whom you called Loser
_______ is me --> the imposter of an imposter

I encourage others to join in.
toyopta 12/4/2012 | 8:06:35 PM
re: Valuation Deflation in Startup Land _____ is the original
______ is the the imposter guy whom you called Loser
_______ is me --> the imposter of an imposter


The above quote graphically depicts what valuation deflation is all about.

t, just kidding
________ 12/4/2012 | 8:06:35 PM
re: Valuation Deflation in Startup Land
Their valuation is tanking and all people care about is who is the real Underline_Man superhero!

Kind of a sad statement on the state of the industry, eh?

PS: Just glad I got the latest round of _'s - they're going fast!


_____ 12/4/2012 | 8:06:31 PM
re: Valuation Deflation in Startup Land I tried to get " " but could not register it- I don't think we'd see an imposter for that one.

But seeing that I am the original, think my valuation would be higher than that of the imposter(s)?

And I don't think the imposter is a full blown loser, just a wanna-be. Not that there is anything wrong with that.

Regards,
"____"
Half-Inch Stud 12/4/2012 | 8:06:29 PM
re: Valuation Deflation in Startup Land careful how you use that 1/2".....got me all confused.

H.I. Stud
blosox 12/4/2012 | 8:06:25 PM
re: Valuation Deflation in Startup Land
"But seeing that I am the original, think my valuation would be higher than that of the imposter(s)?"

Not these days brother, the opposite is true.
pierian spring 12/4/2012 | 8:06:25 PM
re: Valuation Deflation in Startup Land Please note that you are using the evolutionary concept of species or genes i.e., the "Darwinian process" incorrectly and should instead be using the evolutionary concept of social change which was developed by Lamark prior to Darwin and has the eponymous name of Lamarkism.

It is important to understand the differences between the two forms of evolution, since they act through vastly different processes. Darwinism is based upon natural selection and random variation of genes, while Lamarkism is based upon learned or acquired traits which are then passed directly on to their descendents.
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