From The Funded
Well, if 2010 was the Year of the Angel, then 2011 will be the Year of the Startup Default. There has been a convergence of trends where massive amounts of angel debt has been accumulating with no ability to pay it back and no conversion in sight.
I have seen this happen in the past. Companies get funded and move forward where everything depends on raising another round of funding by a certain date. But that next round rarely materializes. Never in the amount and at the time planned for. In the best cases something is worked out, although generally for a lot more equity than planned. But in most cases there isn't another round in time, and the company has to shut down.
Granted, I'm more financially conservative than what is optimal and so have taken no investments of any type. Funding in many cases is the best way forward (sometimes the only way forward). But make sure that the funding will get you to a point where the value of the company has clearly increased substantially. And make sure it's structured so that if the company is not able to raise another round, that the terms don't force the destruction of the company.
And here's hoping it's a minimal number of local start-ups that go under. But I worry that it could be substantial numbers.
