SAN FRANCISCO—Amid a glut of Web start-ups, some strains are starting to show.
For most of this year, a start-up fever, fueled by Facebook Inc. and others, has gripped Silicon Valley. But as the number of tiny Web companies riding the frenzy has mushroomed, some in recent weeks have found it tough to procure new funding, investors and entrepreneurs say.
That is pushing some entrepreneurs to look for “bridge” financing to keep forging ahead, or to cut the valuations they are seeking, the people add.
The average valuations of young companies have dropped recently to $3 million to $5 million, from $6 million to $8 million earlier this year, says Naval Ravikant, a Silicon Valley entrepreneur and investor who runs AngelList, a website where young companies can apply to seek “angel” or “seed” money.
The start-up financing market “is getting weaker by the week, no question,” he says. While AngelList has 50 to 100 start-ups applying for funding daily through its site, only one to two are getting financing, he estimates. “The survivor rate of these companies is way down.”
The trend is nascent and so far largely affects the earliest-stage start-ups, with excess still rampant in much of the market, say investors and entrepreneurs. The strains appear to echo what happened in the late 1990s, when the dot-com boom began to peter out and many small start-ups suddenly found it harder to raise cash.
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