Veteran entrepreneurs said Tuesday that a more cautious investing sentiment could trickle from the stock market into the start-up space, after voluminous and volatile trading left shares of most public companies well off their highs.
Dot-com era businessmen like Bill Gurley, Mark Suster, Jason Calacanis and Mark Cuban said young companies should expect the currently plentiful wells of funding to be drier as financiers decide how to approach the now less-certain financial landscape.
"When many venture investors are seeing their personal public portfolios tank it creeps into their business lives and creates an emotion that is less risk tolerant whether they're aware of it or not," wrote Suster, a venture capitalist at Upfront Ventures, in a Monday blog post.
With the Dow Jones industrial average mounting swings of hundreds of points over the past few days, entrepreneur Jason Calacanis said he's seen investors hitting "pause" on start-up deals in the past week. Some companies with only six or eight weeks of operating capital reported rejections to re-up funding from existing investors, Calacanis said on CNBC's "Squawk Alley."
"It would not be surprising to me if we're sitting here a year from now and 25 percent of the start-ups are gone," Calacanis said. (Tweet This)
Gurley and Suster both touched on how factors causing skittishness in financial markets are also tied to the world of venture capital. Suster said he's seen investors holding their breath over potential Federal Reserve interest rate hikes in September. And Gurley pointed to tech giants and major investors like Alibaba and Tencent, that have been battered in China's recent slump.
On Friday, Gurley, a venture capitalist at Benchmark Capital, tweeted that as technology sectors stocks suffered, "unicorn" entrepreneurs—those from companies valued at $1 billion or more—would face an "inflection point."
"One might reasonably assume that this would have an adverse affect on late-stage private market liquidity and valuation. I certainly do," Gurley tweeted. "If so, we may be nearing the end of a cycle where growth if valued more than profitability. Investors are likely to refocus on business model viability."
Cuban echoed those concerns in a Monday night post on Cyber Dust, where he said he sees highly valued "unicorn" start-ups and their investors as the losers of the stock market rout.
"If the markets stay down here for an extended period of time, they are cooked," he said of the $1 billion Silicon Valley start-ups.
This "inflection point" comes against a backdrop of flush coffers of start-up funding. After hitting a decade peak in 2014, venture capital funding was more than $10 billion in the second quarter of 2015 for the sixth consecutive quarter, according to PricewaterhouseCooper's MoneyTree report.
Going forward, as entrepreneurs are likely to face higher hurdles associated with more bearish sentiments, Calacanis said savvy investors are focused on raising rainy-day funds.
"Savvy entrepreneurs are raising a ton of capital now, because when this market corrects, those dollars become worth two, three, four times as much," Calacanis said. But he said that young companies need to be cautious in emulating unicorns like Uber or Airbnb.
"What those younger entrepreneurs don't know when they see those big fundings, those big valuations is, 'Hey, there's a real business and a business model that's working,' " Calacanis said. "They emulate half the picture and that's a huge mistake."
Suster added that entrepreneurs should be aware of their fundraising time frames going into the next 30 days.
"The markets still affect you," Suster wrote. "They affect consumer spending. They affect business spending."