Startup Hiring Expected to Grow, Funding Crunch Overblown

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Despite expectations that a tsunami-like wave of angel funded startups would be stranded last year due to a Series A funding crunch, that massive crunch never materialized, says Adley Bowden, senior director of analysis for PitchBook.  “There was a sky is falling attitude, but it did not happen,” Bowden says.

startupAnd in 2014, there is talk that this funding crunch will migrate to companies who are seeking their Series B funding. But Bowden is discounting those fears too. “VCs have a lot of dry powder and are raising money at a good clip. The real question is are there companies like Google that can’t get funding, or is it the next companies that aren’t getting funded?”

Overall, Bowden, as well as VCs and startup CEOs recently surveyed by the National Venture Capital Association and Dow Jones’ DJX VentureSource, expect overall venture investments to increase over the previous year. During the first three quarters of 2013, venture capitalists invested a total of $20.8 billion across funding rounds and industry sectors, according to quarterly MoneyTree reports by PricewaterhouseCoopers and the National Venture Capital Association.

Fear, No Fear Hiring

Whether or not a Series B or Series A crunch materializes in the new year, startups that previously secured funding are likely to continue hiring engineers, says Roger King, CEO and founder of Chief People, a Sausilito, Calif., recruiting company that specializes in finding talent for startups.

Because of the tight labor market for engineers, a number of startups that received funding were not able to fill all their open positions, King says. And going into the new year, these companies are expected to continue to hire to fill these positions, rather than pull back for fear a crunch could hit. “If market conditions tighten (on funding), a company may ask for more than they initially planned because it could be harder to get funding later on, rather than stop hiring,” King says.

2014 Looking Better

For entrepreneurs, the funding climate is expected to look even better in the new year, according to the survey by NVCA and DJX.

According to the survey, 59 percent of VCs expect higher levels of venture investment in 2014, compared with 27 percent who had such expectations last year. On the CEO front, 57 percent expect higher funding levels in 2014, verses 43 percent who held such sentiments last year. Here’s a deeper look at the survey results: Funding Predictions Chart “While the market challenges of the past couple of years still linger, respondents predict that 2014 will bring improvements across several fronts, including greater IPO volume for venture-backed companies, greater employment opportunities at startups, and improved returns to limited partners,” the survey report notes.

Sectors on VC Radar

Venture capitalists checked off the various industry sectors that they expect to see increased or decreased funding levels in 2014. Here’s a look at how they stacked up:

Enterprise software continues to have a lot of opportunity, especially those focused on B2B, says Bowden, pointing to such companies as Dropbox and Box. He also pointed to Big Data continuing to grab attention as companies seek to figure out new ways to harness the technology.

On the consumer front, Bowden says Internet of Things — including wearable technologies and sensors — will likely remain a large investment area. But don’t count on any getting funding in the New Year.

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