Web “Start-Ups” Hit Cash Crunch. Or Don’t, Depending On Whom You Ask

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In an article titled “Web Start-Ups Hit Cash Crunch” the WSJ reports that in contrast to the exuberance of most of this year, “for the past couple of weeks” startups are having a harder time raising early stage and Series A funding. “The start-up financing market is getting weaker by the week, no question,” said Angel List’s Naval Ravikant in the piece.

Techmeme’s Gabe Rivera (disclosure: Rivera just so happens to be my current significant other) tweeted out the article with a rejoinder, “You people could have blogged about this before WSJ got around to it” sparking a fierce Twitter debate between numerous high-profile investors including Chris Sacca, Chris Dixon, Mark Suster, Josh Felser, Ravikant and even a cameo by our own MG Siegler.

Well turns out someone did blog about it, VC Bryce Roberts, who recently equated venture’s current state to a “pig passing through a python.” Basically providing a way more nuanced explanation of the WSJ article’s main point, Roberts explained what is happening rationally, “As the time, attention and capital becomes more scarce upstream the number of companies who will attract follow on capital will continue to decrease. Which isn’t necessarily a bad thing.” Basically that what’s happening currently is some form of seed stage Darwinism, weeding out the bad deals while solid companies are still seeing strong valuations. Case in point: Pinterest.

“I think people are overreacting to the increased incubator/seed deal volume, and UNDERreacting to unsustainably high Series B/C valuations… There is no big problem with a bunch of sub-$1m deals running out of money — that’s built into our model. There are plenty of innovative & sustainable lean startups getting started, and plenty of seed capital available from multiple sources (angels, incubators, seed funds, big VCs),” McClure told us.

“Between personal investments and funds I’m invested in I am probably aware of ~100 startup valuations and have not seen a downround or a bridge in the last 2 years,” Dixon wrote in an email.

So did the WSJ jump the gun? “The total number of VCs and the total amount of VC capital has gone down,” says VC Mark Suster “Thus, a brick wall. Plus, ENIFA. Everyone Now is a Fucking Angel. Look at Twitter Bios. Everybody is ‘my day job’ + ‘angel investor.'”

Some of the debate here may anecdotally be based on the disparity in deals people are seeing, seed, Series A or the holy grail of a a theoretical Instagram or Quora Series B. “And, as more companies form but do not reach Series A, the [drop] in new company formation will eventually help dissipate the pain of hunting for technical talent,” Semil Shah said in a post describing precisely this sort of seed “survival of the fittest.”

Which is why this “cash crunch” or whatever is happening might ultimately be a good thing. “It’s the whole frigging POINT to fail on a limited budget instead of wasting a big round,” explained McClure, in his characteristic fashion.

You can follow the rest of the pretty entertaining debate through this Twitter list.