Valley Startups Tightening Their Belts; Layoffs Gaining Steam

Facing an economic downturn and the prospect of difficulty in raising additional rounds of funding, startups are beginning to not only put growth plans on hold, but many are beginning to layoff personnel. Normally this isn’t big news around these parts since startups are part of the Silicon Valley fabric and layoffs come hand in hand with startup life, but what we’re seeing is a lot of startups quickly reverse growth plans they had and actually downsizing instead.

Part of the problem stems from the economic crisis of sorts which the venture capital community is facing, and corresponding fear amongst startups that their next round of funding might be difficult or impossible to raise in this environment.

According to the National Venture Capital Association, VC’s are not only having difficulties raising funds, but the volume of exits for startups is down dramatically, and without exits or other liquidity events, VC’s will be much more selective going forward. Here are some recent numbers the NVCA has released which should provide some color to the current environment:

• In the Q3, 2008, the number of funds which raised money dropped by 29%, and the dollar value was off by 6%, year-over-year
• YTD, the number of IPO’s by VC backed companies totalled only 6, compared to 55 in the first three quarters of 2007, and 37 in 2006. Additionally, non IPO liquidity events in Q308 totalled 58 compared to 102 last year, and YTD the total is 199, compared to 271 through the same time period last year.

Some of the recent layoff announcements from in and around Silicon Valley include Ebay, Seesmic, AdBrite, Tesla Motors, and Hi5. Some of the largest venture capitalist around the valley have recently issued memorandums to their portfolio companies making it clear that capital preservation should be a paramount concern right now.

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