More bad news for Startups.

Today Stacey Higginbotham of GigaOm wrote an article about the deterioration in VC and Angel funding in 2008. While the picture she paints is far from rosy – I think she understates the issue in some ways. With others calling for a startup depression I think we need to be realistic.

That’s not great news, and it’s also likely that overall investment for the year will drop for the first time since 2003, Tracy Lefteroff, a managing partner at PricewaterhouseCoopers LLP, told Bloomberg this morning. Last year, venture firms put $30.69 billion into startups. During the first half of 2008, venture firms invested $14.89 billion, climbing to $20.6 billion if we add in the preliminary third-quarter numbers. It’s unlikely that venture firms are going to put more than $10.09 billion in portfolio companies between this month and Christmas. The last time that happened was in 2000.

Mark Heesen, president of the National Venture Capital Association, says that skittish investors are helping create a poor exit environment for VC-backed companies. So far this year there have been just six initial public offerings and 199 acquisitions through the third quarter — 72 fewer than this time last year.

“We have not seen a reduction in the number of first-time financings in the first two quarters, and we may see some lag on those deals decreasing,” Heesen says. “I believe it will be the fourth quarter that we’ll see the impact that the lack of an exit market has. I am certainly hearing anecdotally that venture capitalists are doing fewer deals.”

Quite honestly that isn’t the scary part. What is scary is that while VCs are doing fewer deals – and that means more deals that involve bigger investments and bigger ownership stakes – they will be demanding that the companies they invest in have cleared “seed stage”. In other words that they have revenues (and preferably profits). Why is that scary?

Venture investors aren’t the only sources of startup capital that are feeling cautious. Data out today from the Center for Venture Research at the University of New Hampshire shows that while in the first half of this year angel investments were up slightly, the number of deals getting funding was down. Total investments in the first and second quarters of 2008 were $12.4 billion, an increase of 4.2 percent over the same period last year. A total of 23,100 entrepreneurial ventures received angel funding in the first half of 2008, a slight decrease of 3.8 percent from the same period last year.

This combination results in a significant problem for the entrepreneur. The bridge – seed stage funding – to move a product or service to viability is gone. We will all have to bootstrap (self fund) to profitability.

Now for the really bad news. Even those with significant capital of their own available to bootstrap will need to seriously ask themselves if they are willing to take that risk right now. Those factors – when viewed a cycle – can lead to exactly the kind of startup depression that the country can not afford right now.

Phoenix Startup Weekend

UPDATE: 10/17/08 – I’ve set up a FriendFeed room enable everyone to live blog the event – see this post for details.

The whole reason I’m going on vacation tomorrow (back next Tuesday) is to rest up for Phoenix Startup Weekend… well not really…

If you have not checked it out – you should. If you aren’t already signed up… you should.

See you there:

Marketers, Web designers, legal experts and others will convene in PhoenixOct. 17-19 to pull off what sounds like an impossible task: develop a product in one weekend from scratch.

The event is called Startup Weekend. It’s the brainchild of technology entrepreneurs Andrew Hyde and Michael Gruen, who operate Startup Weekend LLC. The company organizes the collaborative events in cities across the U.S.

Startup Weekend has a Web site set up for details of the Phoenix event, but it’s currently down.

details of the Phoenix event [From Want to build a product in one weekend?]

Club E having Open House Wednesday Night

There is an open house at Club E’s headquarters on Wednesday night. Might be interesting…

The leaders of Club E Network, the multichapter chain of entrepreneurs networking groups, are hosting an open house at its new headquarters in northeast Phoenix Wednesday night.

The organization, started in 2007 by Peter Burns, Corey Cossack and other small-business owners, recently moved into the multitenant Rose Garden office building at 2625 E. Rose Garden Lane.

The organization is leasing 15,000 square feet, which will be used to house one of six business incubators Club E plans to open during the next several months.

Club E announced last week that it had struck a deal with commercial developer Green Street Properties to open the incubators – called eFactories – in office and retail centers in Gilbert, Goodyear, Chandler, Las Vegas and Dallas.

Tenants will pay between $400 and $1,100 in most cases for either a desk station or a private office. They will have access to high-speed Internet, office equipment and legal and accounting services.

Wednesday’s open house will start with a tour of the facility at 5 p.m., followed by a meeting of the Club E North Phoenix chapter at 6 p.m.

[From Get a peek at Club E’s new headquarters]

Entrepreneurs group, developer to open five incubators

More good news for Phoenix area startups.

Founders of the Club E networking group announced this week plans to open four more “business incubators” with commercial real-estate developer Green Street Properties.

In late August, Club E co-founder Peter Burns said the organization’s executives had struck a deal with Green Street to open its first such location in the Shoppes at Val Vista retail center in Gilbert.

The group, which has more than 10 chapters in Arizona, Texas, California and other states, has since developed plans with Green Street to open additional facilities in Goodyear, Chandler, Las Vegas and Dallas.

Club E, which started as Club Entrepreneur in early 2007, is calling the facilities eFactories. Small-business owners who rent space at the facilities will have access to high-speed Internet, standard office equipment and other amenities.

Burns said the first eFactory in Gilbert is about 90 days from opening. Read more about that facility here.

Club E, which is incorporated in Texas but has its primary operations in Phoenix, is in the process of moving into its new headquarters in an office building at the Loop 101 and Cave Creek Road. The organization plans to operate a test incubator at that site. See a tour of the facility in the video to the left. [From Entrepreneurs group, developer to open five incubators]