For startups, it's all about the bottom line

The worst economy in generations has VCs changing the way they fund young companies. Here's how that shift affects mobile marketing firms.

The mobile marketing industry is constantly changing, and the latest example is the way that younger companies and startups are funded. Gone are funding rounds that stretch deep into the alphabet. Instead, investors are focusing on companies that have technologies and business plans capable of delivering profits sooner rather than later.

That preference shouldn't come as a surprise, considering how the economy has venture capitalists hunkered down. Case in point: In October 2008, one prominent VC firm had a mandatory all-hands meeting for CEOs, the first such meeting since the dot-com implosion.

As attendees entered the conference room, they were greeted with a slide that showed a tombstone and the inscription "RIP, Good Times." During the meeting, one general partner stressed, "For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you're too far off of cash-flow positive."

Another agreed: "Getting another round if you're not profitable will be rough. Do everything possible to get to cash flow positive. Now." Yet another said, "You must get to profitability as soon as possible to weather this storm and be self-sustaining."

Such is the new reality facing all tech companies, including members of the mobile marketing ecosystem.

The new reality

Under the old funding model, startups got a seed round to build a prototype, followed by an A round to move that prototype to commercial readiness. The B round helped get the company cash flow positive and start expanding, and a C round could be added for tasks such as capitalizing on incoming opportunities and enabling faster growth. Each round typically had new investors alongside existing ones, with the latter usually reducing their participation each time.

Under the new model, a single VC needs to plan to fund the business from seed all the way through to the point where the business can fund itself. As a result, there aren't multiple VCs sharing the risk, so the company is under far greater pressure to get to a self-funding position as quickly as possible...Continued

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