Web start-ups face 'cash crunch' as US funding dries up


By Noel Young, Correspondent

October 13, 2011 | 2 min read

Small Web companies facing a "cash crunch" are finding it tough to get new funding in Silicon Valley on the US West coast, according to a report today in the Wall Street Journal.

Angry Birds firm attracts US funding

One investor, Aydin Senkut, describing the valuations of young companies as" insane" said instead he had begun looking overseas for relatively cheaper deals, investing for example in Rovio, the Finnish maker of "Angry Birds."

Naval Ravikant, who runs AngelList, a website where young companies can apply to seek "angel" or "seed" money, said the average valuation of young companies has dropped recently to $3 million to $5 million, from $6 million to $8 million earlier this year.

Ravikant, himself a Silicon Valley entrepreneur and investor said the start-up financing market "is getting weaker by the week, no question," he told the Journal. AngelList has 50 to 100 start-ups applying for funding daily through its site but only one to two are getting financing,

"The survivor rate of these companies is way down," he said.

However the trend so far largely affects the earliest-stage start-ups. Excess still rampant in much of the market, say investors and entrepreneurs. But said the Journal report, "A fundamental mismatch is now starting to show: While scores of Web companies were founded in recent years, there isn't enough venture capital to keep all of them going indefinitely."

On Monday, the National Venture Capital Association said that venture fund raising in the third quarter fell to its lowest quarterly level in eight years.


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