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Chapter 14. Dire Consequences > Starving Entrepreneurs of Capital

Starving Entrepreneurs of Capital

A real danger is that a number of potentially important start-ups are being starved of capital in the aftermath of the bubble. The post-bubble world is in many respects indiscriminating with regard to who gets dragged down. Venture firms are not taking the time and effort to separate the good from the bad. This is unfortunate because good companies and bad suffer alike. CEOs of new firms are spending unreasonable amounts of time trying to raise funds, and valuations are so low that the incentive to be an entrepreneur is limited.

Innovation is the engine of the U.S. economy, and it runs on money. Heavy tech investments have enabled the productivity gains that have helped the economy in recent years. If investors lose faith in the experts that are supposed to be guiding them to the most promising businesses, they may shy away from investing in start-ups, good and bad. Already, the number of initial public offerings for tech companies has slowed to a trickle. “This is totally unprecedented,” says Garrett Van Wagoner, president of the mutual fund firm Van Wagoner Capital Management. “People got so badly burned that they may never be back.”


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