Cash scarcer for new firms

But the volatile stock market has spooked many investors and made it more difficult for companies to find buyers or go public. "You can't get an IPO out when there are a lot of investors sitting on the sidelines," said Mark Heesen, president of the National Venture Capital Assn. Without exit opportunities, venture firms need to keep funding older firms at the expense of younger ones, he said.

Investors are making tough choices about which firms to finance and "which to abandon to its fate," said Mark Cannice, an associate professor of entrepreneurship at the University of San Francisco, who surveys venture capitalists' confidence.

His most recent survey, in January, found confidence at the lowest point in four years.

Investors' new caution could ricochet through the start-up world, which brings new jobs and innovation.

"These young firms are the engine of growth for the economy," said Garth Saloner, director of the Center for Entrepreneurial Studies at Stanford University's Graduate School of Business. Some of the current generation suffer from the same problems that beset those in the last Internet boom -- many are creating near-identical businesses or have only vague ideas of how to generate revenue.

"Tens of millions of dollars are put into them, but they aren't sustainable and they can't continue to go back to the well," said Jon Fisher, an entrepreneur who sold his most recent company, Bharosa, to Oracle Corp. in July.

The slowdown is stumping some entrepreneurs, including those who found success in the Internet bubble. Keith Teare, for instance, whose company, RealNames Corp., sold a stake to Microsoft and almost went public in 1999, thought he'd found more success with Palo Alto-based Edgeio, which syndicated classified ads to clients' websites.

He launched the company in 2006 with $1.5 million and received an additional $3.5 million in September 2006. At the time, investors valued Edgeio at $18 million.

But when he knocked on doors for more money last August, Teare was surprised to discover that the well had almost run dry. Investors didn't think Edgeio was worth $18 million anymore and offered him a total of $400,000. Teare closed the company instead. He now shares his 4,000 square feet of office space in Palo Alto -- paid for until Aug. 31 -- with aspiring entrepreneurs rather than Edgeio employees.

Matthew Gertner expected to get a second round of funding for his Britain-based file-sharing start-up, AllPeers, in November. It didn't materialize, so he picked up work on the side while he looked for other investors or a buyer.

He decided to shut down the site at the end of March.

"There's a strong emotional attachment. It's almost like getting divorced," he said. "There's this huge sensation for entrepreneurs to cling to it and drag it out until they're absolutely forced to close."

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alana.semuels@latimes.com

michelle.quinn@latimes.com