We have been doing a lot of work lately with early-stage companies getting ready to raise their first rounds of Institutional funding. The funding markets are still open and fairly vibrant. That being said, we would not describe venture funding as ‘Easy’ right now.

This point was brought home to us recently in conversation with one of our CEOs. After reviewing the list of investors we planned to contact, he asked

“Why is this so hard? The last time I did this, I didn’t even have a PowerPoint slide deck. I just walked in, talked to a few investors and we were done.”

This is not his first rodeo. In 2009, he started a company. Ran it well for four years, and sold it for a nice return. He went to work for the acquiror for five years, but had a great idea for a new product and started out again.

Of course, as his comment shows, raising money has gotten a last harder. Back when he raised the Series A for his first company, the world was just climbing out of the Great Recession. But in the Valley, capital was cheap and there was a growing wave of optimism. It was very easy to raise money then.

Today it is not. Times and conditions have changed. We are not in a recession, the stock market is still going up, the IPO window is wide open and Venture investors are sitting on massive cash piles and raising even more massive funds. But it is different.

First, everyone in Finance is worried that we are overdue for that recession. We have no way of gauging when it will come, but it will come. Also, we do not have the stats behind this, but our sense is that the pace of VC fundraising has slowed. There are still some big funds being raised out there, but a few years ago it seemed like every week someone else was raising a multi-billion fund. Those headlines are much less frequent. Finally, we think if you poll most people in the space you will find that many feel things have gotten inflated. Valuations for companies are a Round ahead of where they came in five years ago. In the broader economy real estate is Bubbling again.

The smart money has seen this before and as as a result, they are becoming more cautious. People are still investing, but they are taking much longer to do so. In 2009, they were looking for reasons to say Yes, today they look for reasons to say No.

This is not readily apparent to outsiders. New companies are raising money at a rapid clip. There are a lot of less experienced funds in the market, and they may worry less about historical patterns. The more established firms are hedging a bit more, but they do not want to sit out entirely. Interest rates are low, and set to remain so, so people with money will seek returns, and venture can provide that.

This portion of the cycle has been incredibly drawn out. We have been writing about it for several years (and here and here). We may have been overly cautious in some of them, but what we got wrong was how protracted the slowing would be. We are in a slow-motion slowdown.

For companies raising money, the key takeaway should be budget for a much longer fundraising process. We usually quote six months, but that can vary a lot. Be patient and throttle your burn rate accordingly. When the downturn comes, it will not be the best companies that survive, it will be the ones that raised their funding most recently.

For investors, the key takeaway would be to broaden your investment scope. There is already a lot of money chasing the well-defined categories, but there are a lot of areas that have been overlooked for years where interesting companies are popping up. For our part, we would love to see more investment in hardware, components and networking. We know some promising companies in this space, drop us a line if you would like to learn more.