Having covered the semiconductor business for nearly 20 years now, through three major recessions, I am increasingly coming to the opinion that venture capital is not merely dead or dying, but undead.
"Venture capital is dead," says Henry Hyde-Thomson, chairman of Anglo Scientific near Malvern, and that was backed up by 3i pulling out of venture capital last year. Part of the problem is the gap between the money that founders can raise and the venture capital available. This has traditionally been provided by angel investors, but in the current climate these are being squeezed.
"At the moment the funding gap is being entirely filled by private investors and they are being stretched at the moment," he said. Anglo has a pedigree here, with some of its backing coming from Jon Moulton, founder of private equity firm Alchemy Partners and highly experienced in the tricks of the investment trade .
Now I've heard VC's called vampires in the past, but that's usually when a naïve startup has re-read the term sheet and found they've been taken for a ride. I'm thinking more the idea of retiring to the coffin for the tough times and only coming out when the blood is flowing.
Looking back to the 2001 Internet bubble, when the VCs palmed off their investments on mainstream investors at the peak, I had been expecting there still to be plenty of money available today, but in cash. No such luck, it turns out. As one non-executive director of a startup says, "you need a AAA business plan even to get a meeting, and they never say no, but nothing happens."
VC has a vital function, providing funds for innovative startups to grow and revitalise the industry, and it is now that the funding is absolutely vital. But the current model of funding new ventures is dying as a result of the credit crunch, and new models of supporting startups are needed, says Hyde-Thomson.
This is echoed by the development of the European Microelectronics Academy that aims to bring startups and investors together faster.
"The venture capital industry has become more risk-averse, choosing instead to make fewer larger deals, in later stage technologies," said Bruno Johnson at Southampton startup Cascoda Semiconductor Design, one of the latest members of the Academy.
"The Angel investment community does not have the critical mass to be able to fill the resulting gap. Although government grants are available, these are limited to modest sums, and are often conditional on raising the majority of funds from other sources. Should the current climate persist, the UK could loose the expertise which has brought such tremendous value to our economy."
That's not to say there aren't deals being done - two semiconductor startups are signing deals for Series A funding this week, which in the current climate is tremendous, but they are few and far between, and the VCs need to creep out of the coffin and into the light before it's too late.
Nick Flaherty has been covering technology since 1990 and is based in Bristol, where he co-founded the SiliconSouthWest network. During that time he has worked for most of the electronics magazines and newspapers in the UK and several in Europe and the US, covering all areas of the industry. He blogs at www.flaherty.co.uk.
See also: the Electronics Weekly blog On Air, covering news on developments and funding for electronics startups.
(Picture - Salem Graves, by spankmeeehard, from Flickr, under Creative Commons Attribution Licence)