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Credit crunch, time to start shopping. . .

April 8, 2008

Citigroup, Bank of America and Wells Fargo are going to curtail lending to preserve their capital ratios.  The FDIC is reporting that these banks will likely be downgraded and will no longer be considered well capitalized.  The FDIC is saying, “We are dealing with an unprecedented situation.“  What does this mean?  Companies who use credit to finance their operations will have a harder and harder time finding debt.  If they can’t find debt they will have to hunker down to survive, slowing their growth turning our mild little recession in a much more serious matter.

I have several friends who are in the middle of equity rounds with venture capital firms and deals that were supposed to close last month haven’t closed.  The venture funds are tightening their investment criteria and looking for ways out of deals that haven’t closed.  This is especially true for deals that require debt along with the equity infusion.  It reminds me of 2001 in the telco space ~ lots of opportunity, but very few people willing to act.

If you have the capital it is time to start shopping for companies.  Look for businesses that use debt to finance their operations.  Staff augmentation businesses come to mind.

Written by Alexander Muse · Filed Under Blog, Venture Capital 

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