Pre-IPO Profits

Startup Investing in a Recession

Startup Investing in a Recession
By Adam Sharp
Date June 16, 2020

The U.S. stock markets are nearing all-time highs. But all is not well with the economy.

A huge portion of small businesses are struggling to pay bills. Big corporations are faring better, but they have their own issues that need to be addressed — too much debt, overpaid CEOs, and profits spent on buying back their own stock.

In my view, we’re still in a serious recession. It seems as if the Fed thinks so too. They’ve said they won’t consider raising rates until 2022.

And while you may not be able to see the ongoing recession through the lens of the stock market, it’s clearer in the early-stage private investing world. 

Startup deal volume is way down. A lot of young companies won’t survive the coming months. 

This is not necessarily a bad thing. Things were getting a little too hot in the startup world in my opinion. VCs were investing far more than any time since the 2000 bubble. Money was relatively easy to come by. 

Now, things are harder. And this makes for a better investing environment. Founders have to get serious about being profitable. Non-serious founders are often screened out by this type of market. Valuations appear to be dropping in most sectors. 

One of my favorite angel investors, Jason Calacanis, says that “Fortunes are built during the down market, and collected in the up market.”

This isn’t always the case, of course. There are great startup investments to be found in any market. But I believe it’s probably easier during recessions. Just as it is usually more profitable to buy stocks during a downturn. 

There will be fewer deals out there. But on average, they will be higher quality at a lower price. That’s good news for investors like you and me.

Top Posts on Early Investing