Unless you’re cutting backroom deals, stay away from trendy tech start-ups

Despite the harsh economic conditions, there is still money to be made in technology start-ups. Only a select few however have that opportunity because of their access to big time VCs and can invest in the early stages of the start-up. The Facebook I.P.O. bust demonstrated that unless you’re highly connected with big firms, tech start-ups are still risky investments.

“True Ventures, an early stage venture capital firm with investments in Automattic, the parent company of WordPress.com, and MakerBot Industries, has raised $205 million for a new fund. It took only eight weeks to close the fund, amid strong investor demand.

It is the latest firm to close a new fund, despite continuing challenges in the broader venture capital industry. Last month, for instance Kleiner Perkins Caufield & Byers, raised $525 million for its 15th early stage fund. And this week, the Madrona Venture Group announced the close of a $300 million fund, its largest to date.

In the first quarter, venture firms raised $4.9 billion, a 35 percent drop from the period a year earlier, according to a recent report by Thomson Reuters and the National Venture Capital Association. Most of that capital was concentrated at the very top, with five firms accounting for nearly 75 percent of the total.

A lot of the money raised was earmarked for early stage investments, heightening competition in the already crowded strata.

Before Facebook’s I.P.O., there were plenty of checks chasing early deals, from traditional venture capital firms, young boutiques and a growing class of so-called angel investors, many of whom are founders-turned-investors.

Although it is still not clear how Facebook’s I.P.O. — and the ho-hum performances of other recent Internet darlings like Zynga and Groupon — will affect early stage investing, many start-ups are now tightening their belts and recalibrating their expectations.”

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