For Startups, 2012 Swung From Consumers To The Enterprise

For consumer-oriented startups, 2012 came in like a lion, but left like a whimpering lamb. As the year went on, startups that target the consumer market had an increasingly hard time getting funded.

Blame Facebook. Blame Groupon and Zynga. All of them had a discouraging year and their flaccid performance caused a lot of investors to cringe and scroll feverishly at their touchscreens in search of enterprise startups to fund.

For perspective on 2012, we talked to Jeff Fagnan, partner at leading venture capital firm Atlas Venture and an investor in early-stage startups since 2000.

"We've seen a pendulum swing in where the early-stage money is going," Fagnan said. "I don't know if we saw a full-scale shift among the entrepreneurs themselves away from the consumer to the enterprise but I did start to see a blurring between the two spaces. There is no shortage of interesting consumer Internet ideas that will get funded, but I did really see a shift in the public mentality and VC mentality away from the consumer side."

Series A, Not to B

 The 2012 Bad-Timing Award goes to those founders who launched consumer startups - and to the investors who funded them. A lot of these companies will not land follow-on rounds. So where do they go from there? Some may join forces, because the constraint in today's market is talent more than money.

On the other hand, "some people will say, 'I'm done. I've got a failed startup. I'm going back to work at Google,'" Fagnan said. "There is huge amount of seed velocity and there can only be so many Series A companies, so there will be a lot of seed startups that don't make the leap."

Worse, that leap is harder than ever, because the bar has been raised. A lot of companies have been funded, a few have gained traction and soared - and made the rest appear insignificant by comparison.

Touched by an Angel

AngelList transformed the startup landscape in 2012. The site, which enables startups to connect with investors and talent, has channeled more than $2 billion in funding for early-stage innovation. It has facilitated over 20,000 talent matches.

AngelList has demystified the black box of venture capital and flattened the old geographic barriers to funding. "Sitting here in New England, I used to have a hard time hearing about startups in Calgary or Louisville," Fagnan said (Disclosure: Fagnan is an investor in AngelList). "Now, suddenly, I hear about them, because they're presented in a taxonomy and social graph that I recognize. Tech entrepreneurship used to be this coastal phenomenon of the Bay Area and Boston. AngelList is democratizing the angel universe across geographies."

Crowding In

By some estimates, crowdfunding platforms will one day provide startups with as much as $300 billion, ten times the amount now deployed in the venture sector. Crowdfunding is not there yet, but the total will still hit$3 billion this year, says Crowdsourcing.org, with the crowdfunding market growing at an annual rate of 63%.

"That is hugely exciting," Fagnan said. "Yes, some people say it's bad for VCs. But crowdfunding s is good for society in terms of creating hell of lot more innovation and entrepreneurship."

Desperately Seeking Talent

The final big startup story for 2012 is talent. It's now the coin of the startup realm, as attracting good people has become more difficult than getting investment. It's simple supply and demand. Thousands of startups are launching and hiring, at the same time that giants like Google, Twitter and Facebook are hoovering up any and all competent tech people.

"The talent issue has been going on for a few years but this year was the most challenging and severe," Fagnan noted. "It definitely took the cake."

 

Image courtesy of Shutterstock.