The start-up arena is seeing a lot of dry period with respect to investment as VCs are shying away from investing as witnessed by Snapdeal and Stayzilla.
Shortage of money and investor’s strategy
Unlike earlier times, VCs do not invest irrationally into start-ups and this has made the young aspiring entrepreneurs respect the investors and understand the value for the money. Since there is shortage of money for investment, anyone who is willing to invest has a great demand in the market.
Why Angel Investors are in demand
The start-up environment is dependent on the market and this has now shifted towards the angel investors. It has become tough to get funding from investors but entrepreneurs who have a clear plan for their future with profit can still find it easier to attract angel investors as there are still investors who have a long term perspective as opposed to short term profit.
Too much investment
The irrational approach applied by the VCs to invest in every other start-up because they had too much to spend caused this problem in the first place. The aspiring entrepreneurs lost touch with reality as money was easy to get and everyone expected a high valuation for their startup.
Problem in return
When the angel investors got touch with reality and expected a return for their investment, differences grew and most of them withdrew their investment. The past has been a witness that such partnerships never end well and everyone losses or get hurt.
Not every startup can handle big funds properly
Not all start-ups are able to handle the funds supplied to them. So a good funding can most of the times be bad for a startup rather than good. Easy money makes the entrepreneurs distracted from the path.
Seed stage funding and Angel Investors
Angel investors are better suited for seed stage funding because they can invest small amount of money which will keep the founder focused. Since they are investing their hard earned money, they are more likely to go for a sensible and promising startup which can better utilize the funds allowed to them.
End up of overspending leads success
These start-ups have a steady growth initially and start earning soon. They might become successful in future and start making money exponentially. This process of growth increases their chances of survival as they end the overspending of too much cash they got from funding and stay focused on the actual path of innovation.
As of now it seems that VC funding is over for the near future and we have to move back to the basics where we can build a stable structure for the start-up ecosystem.