Tech-Design Firms Want More Cash as Equity in Startups Wanes

Nathan Olivarez-Giles reported on Thursday at The Wall Street Journal Online that, “Two years ago, when startups were flush with money, a wave of hardware and software design companies were eager to work with them and get paid in a mix of cash and equity—stakes that they hoped would one day pay off handsomely. But as startups increasingly struggle, those designers are getting more selective.”

Mr. Olivarez-Giles noted that, “These days, however, the dynamic has changed. Austin, Texas-based Argodesign and other smaller design firms increasingly want to be paid in cash to balance out earlier startup gambles.

Since last fall, venture capitalists have been scrutinizing the values of startup shares after years of pumping up valuations and focusing on growth. Volatility in the public stock market and a lack of initial public offerings have discouraged investors, including mutual-fund companies, which in recent months have marked down the values of their stakes in more than a dozen startups.

“The median valuation of startups fell in the first quarter to about $18.5 million from a high in last year’s third quarter of $61.5 million, according to Dow Jones VentureSource.”

The Journal article added that, “However, [product designer Mark Rolston] added that he still believes equity startups will lead to financial success in the long run. ‘As long as we maintain a balance between the cash side and the equity side, we can make a strong business,’ he said. ‘We really believe we’ve got blockbusters’ in their cash-equity lineup.”

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