A recession impacts venture capital in two main ways: 1) Reducing exit potential 2) Reducing available capital for new funds The first is simple. In a recessi

A recession impacts venture capital in two main ways: 1) Reducing exit potential 2) Reducing available capital for new funds The first is simple. In a recession, capital is more scarce. Cash on Balance Sheets shrink. This makes it harder to find buyers (as in acquisitions - think YouTube by Google). IPOs are also less successful because of depressed stock market performance. PE ratios generally decline, making these exits less attractive. The second is more complicated. Since capital is more scarce, finding investors for new funds becomes more difficult. Venture capital (and all of private equity) is viewed as a risky asset class. In a recession, portfolio managers usually cut back on riskier investments, favoring safer investments, such as stocks and bonds. However, VC funds are committed funds, meaning that once a fund starts, that money is there whenever it needs to be "called down." In this respect, recessions don't impact startup funding because the money has already been earmarked. Since the last two years have seen LOTS of money poured into VC with LOTS of additional funds created, I don't expect to see a significant slowdown over the next 1-2 years. If the recession lasts longer, or if exit opportunities change substantially, this may change.