- Zombie venture capital firms, which have no new funding capacity, are on the rise
- They are paying for rising interest rates and the recent failure of Silicon Valley Bank
- This is a huge concern for startups, especially those in the seed phase.
This is a concept that is being talked about more and more in the world of Tech. The “zombie” VCs, those venture capitalists who are already almost dead, and don’t even know it. If we want to define this notion simply, these are companies that have already raised funds in the past, therefore benefit from a portfolio, but no longer have any financing capacity.
This term “zombie” is perfectly explained. Indeed, these companies will not die immediately because they already have stakes in startups that work, but they no longer have any means to support new ones.
The party is over
According to several observers, nearly half of these companies may no longer be able to raise new funds. For what ? Blame it on the rise in interest rates which increases the cost of borrowing, but also on the recent bankruptcy of the Silicon Valley Bank which created a wave of panic in the banking sector and among their customers.
For a long time, however, money flowed freely within Silicon Valley. Companies that launched in 2019 and 2020 have benefited from this euphoria. Without great talent necessary, it was enough to leave with a little money and an address book to take advantage of this abundance of liquidity and become very rich in record time.
The party is well and truly over for these leaders, and some welcome this new, more responsible era, where we do not lend money to just anyone. The figures are very telling in this respect. According to CB Insights, venture capital firms worldwide raised $65 billion from 6,000 deals in the first quarter of 2023. This is the lowest level seen since 2020.
Quoted by CNBCMaëlle Gavet, CEO of the global network of entrepreneurs Techstars, shares this idea: “We expect there to be an increasing number of zombie venture capitalists; VCs who still exist because they need to manage the investment they made in their previous fund, but are unable to raise their next fund”.
Be that as it may, for startups, dark days are looming, and funding difficulties are already being felt. It is also, as one can imagine, a waste of time which the latter would do well, especially if they have to discuss for hours for contributions from which they will never benefit.
