It looks like the Venture Capitalist boom may be coming to an end in start-up rich San Francisco. According to a February 2016 article in the San Francisco Business Times, more and more deals being made by venture capitalists include terms that signal a “cooling in investors’ appetites for pouring money into startups.” Downrounds jumped to 12% of the venture deals made at the end of 2015, a signal that startups may not be as profitable as they had been and that investors are less willing to give them large amounts of start-up capital during their initial rounds of financing.
So what is a start-up company to do? A senior partner at Scale Venture Partners said that “smart companies are cutting costs and raising capital.” Venture capitalists would be wise to encourage the business who are seeking additional funding to join a group purchasing organization such as Concerto, which specializes in resources and vendors for start-up companies. Membership in Concerto is cheap, just $10, and even that minimal cost can be quickly recouped through discounts and rebates. Moreover, joining a GPO saves a start-up business time and money on their administrative and overhead costs.
If start-ups want to succeed, they’ll need to cost cuts quickly. Joining a GPO gives them a head start on finding the vendors and resources that their business needs without spending their own internal resources on vetting each potential source. The cost-saving benefits could make the difference between success and seeking more funding from a downround, signaling impending doom for the start-up. Venture capitalists eager to help the start-ups they are funding should encourage–or even require–membership in a GPO.