With market down, startups are bracing for a tough 2016

36% of execs surveyed by Silicon Valley Bank say things will be same or worse, double that of 2014

We all know by now what happened at the end of 2015: late stage investors started downgrading their unicorns, the IPO market shrank to nothing and investments fell to their lowest numbers in years.

With those kind of conditions, and so much uncertaintly, it's gotta be hard to be an entreprenuer right now. We've gone from the best of times, where money was flowing like water over for the last few years, to, well, maybe not the worst of times, but much worse for a company that wants to raise money.

That pessimism is reflected in a new Startup Outlook 2016 report from Silicon Valley Bank, in which it surveyed 900 technology and life science executives on their feeling about what the market will look like in the coming year.

When asked what their outlook on business conditions for their company looked like this year, as compared to last year, over a third, 36 percent, said that it will be the same or worse. In 2015, 26 percent had said the same thing, and only 18 percent in 2014, meaning the number has doubled since then.

Even more startling were the number who had a down view of the fundraising environment, with 21 percent saying that access to financing was their single biggest challenge in running their businesses.

A total of 82 percent of those survyed said that raising money is a challenge right now, with 19 percent saying its "extremely challenging," and the other 63 percent saying its "somewhat challenging."

That number seems high, but it's only one percentage point higher than it was in 2014 and 2015. In fact, the "extremely challenging" number dropped from 24 percent the last two years. So not much has changed in that department, or it might even be getting better.

Despite how hard it is to raise funding, most startups still expect to raise venture capital in their next funding round. That trump any other kind of funding, including angel/micro VC, private equity, corporate or organic growth. It's not even close: 42 percent said will get VC funding, next compared to only 11 percent who said that angel funding.

Startups also seem to be reacting to the terrible IPO market in 2015. There were 169 IPOs last year, which raised $30 billion in 2015. Not only was that a 39 percent drop in volume, and a 65 percent drop in money raised, but numbers were the lowest since 2009, which was right in the heart of the recession.

So that could be why more than half of the startups in this survey said their long-term goal is to be acquired, while only 17 percent said they are aiming for an IPO. 19 percent want to stay private. 

Accordingly, 82 percent said they expect as many or more acquisitions than there were last year, and 2015 was a big year for M&A. It was actually the most active year on record for announced deals in the US technology sector, as the number increased by a whopping 82 percent over 2014, jumping from $171.6 billion to $313.1 billion.

There is one other thing that is making entreprenuers nervous, and it's one I was not expecting: a lack of talent.

Almost everyone that was asked, 95 percent, said it was hard to find people with the skills necessary to help grow their businesses. That is up from 92 percent in 2015, and 87 percent in 2013. And they said that talent crunch was hurting the business, with 46 percent saying it slowed down product development, 35 percent saying it mae it difficult to scale and 30 percent saying it slowed down revenue growth.

This is, overall, a pretty pessimistic view of the tech landscape, but there could be a silver lining here, as Silicon Valley Bank wrote in its report.

"Entrepreneurs we speak with, while remaining naturally optimistic, are adopting a new attitude: Be prepared. They are pulling the reins tighter on operations and retooling strategies. They are anticipating a more balanced funding environment," it says.

"They are considering M&A an even more viable exit strategy. In 2016, access to capital will get harder. But it’s not supposed to be easy, and there will be opportunities for good companies with good ideas. That’s healthy."

(Image source: mentalgamefish.com)