Everyone is asking everyone: what kind of impact does the financial market mess have on your business? Certainly everyone is asking me what kind of impact it has on my business ... does it effect the VC world?
The answer is that it does, albeit not in the way many people think. At least I think that people think that somehow our money is running out, like all the banks; mostly that is not the case. Some VCs will have trouble when they make capital calls (asking their investors to send the next tranche of the investment money that they are contractually bound to send) ... some investors will not send their funds, despite the contracts, and those VC firms will have a major headache to manage.
Also, for VC firms who are raising new funds, especially from a broad base of investors, this is a tough time. (Think of a VC firm as similar to a mutual fund firm; every few years they start a new fund and need to "raise" - get those contracted commitments - for a certain aggregate amount from their investors. Those commitments are drawn down in the form of the capital calls I mention above.)
However, *all* VC firms have dropped any expectations, for a significant time, of any good exits. Even more immediately we worry about the ability of our portfolio companies to keep going through tough times. These startups will be trying to sell their products and services to consumers or businesses who are loathe to spend a single penny they don't absolutely have to spend.
Sequoia Capital, one of the most respected and well known VC firms in Silicon Valley very recently called a summit of all their company CEOs and ran through a doom-and-gloom presentation, now available online. It is well worth reading. There are others sharing similar thoughts all around the VC world.
There is at least one person offering what he considers an antidote to all this fear, and since he quotes my favorite Sci-Fi book (Dune), I provide this link to his thoughts here (tip of the hat to Greg Gretsch for the reference).
Certainly, pretty much any company that makes it through this tough period will emerge as a leader once the tide turns. We hope (and work hard to ensure) that some of those companies are in our portfolio, and that we can benefit when the time is right. We do not need a full-blown recovery to reap the benefits, just some semblance of normalcy in the markets. Industry or sector consolidations driven by difficult times can result in good outcomes for startups who are in the right place at the right time. Don't get me wrong, however, a full-blown recovery would be nice, too!