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Facebook has flopped on the public markets, and now we have vivid evidence of how badly Silicon Valley is reeling in the fallout.
Paul Graham, cofounder of Silicon Valley's most important startup incubator, Y Combinator, has sent an email to portfolio companies warning them "bad times" may be ahead.
He warns: "The bad performance of the Facebook IPO will hurt the funding market for earlier stage startups."
"No one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle."
He says that startups which have not yet raised money should lower their expectations for how much they will be able to raise. Startups that have raised money already may have to raise "down rounds," or at lower valuations than they previously had.
"Which is bad," he writes, "because 'down rounds' not only dilute you horribly, but make you seem and perhaps even feel like damaged goods."
