VCs face the music

A Nov. 8 article in the NY Times (not sure how long the link will last) explores the phenomenon of Internet companies that are avoiding venture capital. Seems it's too expensive and comes with too many strings attached.

• 
  "Some [startups] have gone without venture capital altogether or have raised far smaller sums than venture investors would have liked. Many were sold for millions before venture capitalists could even get in. That has been a challenge for venture capitalists, who have raised record amounts in recent years and need places to put that money to work.
  “V.C.’s hate it; they want you to take big money,” said Jay Adelson, who is the chief executive of two start-ups, Digg and Revision3. Digg took some venture money, but far less than backers offered, and Revision3 has been running on about $850,000 raised from a group of angel investors."

Fear not. The VCs are actually learning to adapt to the market.

• "Just last week, Charles River Ventures announced it would offer loans of $250,000 to entrepreneurs as a way to gain access to promising start-ups. Other firms are also giving out small loans, albeit not as a part of any formal program. "
  

With falling technology prices reducing the cost of entry for most Net companies, one entrepreneur who has formed his own angel-investing fund told the Times, “I came to the conclusion that $500,000 was the new $5 million.”

Welcome to the real world, NYT. Vulture capitalists have never been loved (or even tolerated) for anything but their cash. Every entreprenur knows that as soon as they take VC money, their head is being measured for a pike.

The difference now is that there are more alternatives for funding, especially from angels (anyone with money who invests as much for the relationship as the return). Our society has never been richer, and these angels are smarter and more experienced than ever, and ready to take intelligent risks.

Pity the VCs: All that money, and no one wants to dance.