Venture capital companies have successfully raised record-breaking capital in the past, but for the first quarter of 2016, investments have dropped 25%, according to a report made by Dow Jones VentureSource. A lot of startups were affected, including Shuddle, a ride hailing service for kids based in the Bay area which unfortunately ceased operations on April 15th of this year. The firm’s financial resources dried up and was unable to get more funding.
Shuddle, whose competitors were HopSkipDrive and Kango, was able to raise $9.6 million in capital last year. This capital was originally for the expansion of their services, yet the endeavor never pushed through. Doug Aley, CEO of Shuddle, told the San Francisco Chronicle that in order for the business to be profitable, the company needed to raise $10-$15 million.
It seems that the momentum of the private technology market is slowing down. The fact that Shuddle had to shut down due to lack of capital is a clear indication that investors are tightening their belts. This is in great contrast to previous years, when venture capitalists easily signed checks to lend money. Companies that have a low probability to profit have been unable to get funding in the past few months. Investors are making it difficult for the technology sector to get the capital they need since their demand is for startups to find quicker ways to increase profitability, remove the focus from negative gross margins and reduce burn rates. If things continue at this rate, the technology sector may start going under faster than we think.