• Business Insider, Tuesday, June 5, 2012 10:51 AM

Spooked by Facebook’s troubled IPO, select leaders are warning of tough times ahead for Web upstarts. In an internal email to portfolio companies, Paul Graham, co-founder of Silicon Valley startup incubator Y Combinator, cautions: "The bad performance of the Facebook IPO will hurt the funding market for earlier stage start-ups … No one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle."

Regarding Graham’s email, Business Insider writes: “He says that start-ups which have not yet raised money should lower their expectations for how much they will be able to raise. Start-ups that have raised money already may have to raise ‘down rounds,’ or at lower valuations than they previously had.”

What’s more, as Graham explains: "The start-ups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of start-up gets destroyed when markets tighten up. So don't be that start-up.

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