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I've been working for a startup that recently exited it seems to be common knowledge in the startup community( and everywhere else? ) that a recession is just a

I've been working for a startup that recently exited it seems to be common knowledge in the startup community( and everywhere else? ) that a recession is just around the corner. I'm definitely not an expert in economics but these are just the pieces I've put together. From what I've heard/read the recession will primarily affect stock pricing and available investment assets. Many startups feel that if they don't exit now they will never have the opportunity or will have to exit with much lower numbers. This seems like a strong driver of exits.

AchieveLife 8y ago
Similar experience. A VC told me that "Money is flowing freely right now" and to "take advantage of it". Implicit message was that it won't be this way in the near future and now is the time to jump on the wagon.
- learc83 8y ago
  VCs have been saying that for years. It won't always be this way, and we will almost certainly will have a recession in the "near future", but whether that's 10 weeks or 10 years away is the real question.
  - AchieveLife 8y ago
    I'm not so much concerned about when it will happen rather the inflated attitude expressed by the VC about money. like a child playing with fire.
    - stickfigure 8y ago
      It's kind of their job, no? You wouldn't expect to hear a VC say "Hey, here's a term sheet, but no rush - get back to us when you feel like it, there's always plenty of money later." "Recession is just around the corner" is VC-speak for "Offer available while supplies last! Hurry, operators are standing by!" That doesn't mean it isn't true, of course.
      - AchieveLife 8y ago
        This reminds me of the Mortgage Broker Scene in The Big Short where they interview two brokers. It's their job yet they are contributing in spite of consequences. https://www.youtube.com/watch?v=MesrrYyuoa4 https://www.youtube.com/watch?v=MesrrYyuoa4
learc83 8y ago
It's been common knowledge since the end of the last recession that a recession is just around the corner. It's always common knowledge that a recession is just around the corner. It's a non falsifiable position because if a recession doesn't happen for another 5 years, they'll just say that 5 years was what they mean by just around the corner.
- stochastic_monk 8y ago
  While saying "it's around the corner" isn't terribly useful, hosts of indicators such as incoming increases in interest rates and stagnating wages support the expectation, and these warning signs have increased over the last two years.
  - toomuchtodo 8y ago
    FedEx just posted a terrible quarter and oil just dropped below $50/barrel. To your point, lots of macro indicators [1] flashing red right now that a slowdown is in progressive. I’d bet money (already have technically with SPX puts) that when you look back 6 months from now (the only way to properly asceetain when a recession has started), you’ll see it’s started. These IPOs are too late. [1] https://reddit.com/r/investing/comments/a66a1g/_/ebsgrmv/?context=1 https://reddit.com/r/investing/comments/a66a1g/_/ebsgrmv/?co...
    - slededit 8y ago
      The US is doing great. The rest of the world not so much. It’s really been the story of this recovery since the end of the Great Recession. The US went for Keneysian stimulus and Europe went for austerity. The results have been unambiguous.
      - konschubert 8y ago
        I may be confused, but doesn't the European Central Bank have a zero percent interest rate set at the moment? Isn't that a Keynesian stimulus?
ChuckMcM 8y ago
It seems nearly everyone always believes that a recession, big disaster slowdown, market crash, Etc is "right around the corner." And for the last 10 years they have been wrong in the macro sense :-). That said, this was from the article: "Many of the tech companies that listed shares in the U.S. were based in China, including some of the largest IPOs of the year, such as online-entertainment services company iQIYI Inc. and Chinese e-commerce company Pinduoduo Inc." The Chinese economy is reacting in all sorts of ways to its new larger size, pressure from the US in trade wars, and pressure at home to spread some of the prosperity around. If you take all of the Chinese companies out of the list, the IPO statistic is unremarkable. What I find most interesting is the Unicorn do or die issue. Which is that many may find it impossible to go to the private equity trough again, that bubble does seem to have deflated. Valuations aside, when you have raised over a billion dollars that is real money that somebody is going to miss it if you just roll up the carpets and go home. It felt to me that the collapse of Theranos woke up a lot of 'stupid' money (that is money from people who are investing in a fad but without research). And those folks have said, "Hmm, ok now I'd like to sell my equity in this company you guys say is worth $X, that means you will pay me $Z for my stake right?" Only to find it doesn't work that way, there are no buyers, no liquidity as they say, for those preferred shares. But they can vote and they can tell the CEO, you're not getting another penny from us, we'd like to sell our shares. And that leaves the public markets as the investor of last resort. So it does feel like a Unicorn reckoning is to be had. Where companies will have to prove that a cruel and unemotional market will agree with their lofty valuations. They won't all make it over that hump. As the Vikings might say, "There will be songs sung about these days."
- grey-area 8y ago
  We're already in a correction, in the macro sense, and we are entering a bear market. It's far too late for successful IPOs.
  - 0x54D5 8y ago
    What is with this weird assumption that the recession will never come? On average since the founding of the nation every 10 years or so we have had some kind of a recession/economic slowdown. It's coming whether or not you think it is.
grey-area 8y ago
The crash has already begun, a global recession will follow after but that won't be till later next year. We're in a correction and entering a bear market. https://finance.yahoo.com/chart/%5EIXIC https://finance.yahoo.com/chart/%5EIXIC Stocks like Amazon and Apple have lost up to 30% in the last few months, and Nasdaq has seen steep declines since the summer. So yes, earlier this year was a good time to IPO. Talking about exiting now with an IPO is definitely a little late, and I pity companies like Uber which have one scheduled for next year.
- Bombthecat 8y ago
  Germany shrunk already last quarter.if they shrink another quarter it is officially a recession.
  - grey-area 8y ago
    It's looking like recession globally, doesn't look like anywhere is going to escape this.
- jquery 8y ago
  I think Uber is uniquely positioned to weather a recession, its business has counter-cyclical properties... in a recession when people are losing jobs, it's easier to hire drivers and induce demand via lower prices. That stands in opposition to ad-based tech companies which seem to be hyper-cyclical.
  - grey-area 8y ago
    ad-based tech companies which seem to be hyper-cyclical I agree ad-based tech companies are going to be really hurt by this recession. So Facebook, Twitter and Google will suffer, but particularly Facebook and Twitter may not survive the next few years. Smaller tech companies based on affiliate or advertising revenue won't stand a chance. I disagree that Uber is uniquely positioned to weather a recession. IMO they are too early - when we reach self-driving cars this type of company will be able to expand globally and prosper, but Uber is too early to do that, they're going to have to keep trying to make money with a huge host of freelance drivers and all the problems they bring (regulatory, cost, unions etc). They just raised $2 Billion on a 120B valuation, but they're still losing huge amounts of money per year. Uber lost $1 billion in the third quarter 2018. Those are astronomical losses, that's around $4B a year. I don't think they have any chance of hitting a profit in a recession, they may survive, but they're going to squander huge amounts of money to do so.
standerman 8y ago
There seems to always be fear mongering by people who benefit from the "opportunities" created by the suffering of those most vulnerable whenever there is a sufficient amount of fear, uncertainty, and doubt pumped into the public mind to create an economic pull back. Or maybe they are Russian agents attempting to attack the US economy? Either way, the best advice is generally: don't read the comments, there's too much toxicity, manipulation, and disinformation
- ssnistfajen 8y ago
  TIL that WSJ, Bloomberg, BAML, and a plethora of financial institutions are all "Russian agents attempting to attack the US economy". Reading the comments was clearly a mistake as the paranoia has gotten completely out of control.
  - standerman 8y ago
    Those organizations are composed of individuals. There are also many ways to influence people's perspectives, often without them realizing.
ed_balls 8y ago
It's not "recession around the corner" as a main driver. Market is great now, but that will change when they interest rates go up, hence people wanna catch this boat before it sails.
- rootusrootus 8y ago
  Market is great now? It's been going down steadily for several months, is nobody paying much attention aside from active investors? Today SPY just busted through it's 52 week low.
  - ed_balls 8y ago
    When companies are planning IPOs they do it months before. Was there a better time in the last 10 years?
davidw 8y ago
I think this is the thinking: get while the getting is good, before the Trump Slump hits.
amelius 8y ago
> that a recession is just around the corner. I'm sure economists/data-scientists have models for that, and if there would be any obvious sign, we would know it by now.
- jklein11 8y ago
  A model isn't a crystal ball, it is a way of formally describing something using mathematics. A model could tell you that a specific set of conditions that preceded a recession have occurred again. One example of this would be an inverted yield curve.[1] A recession is when an economy declines for at least six months.[2] I guess the best predictor of a recession is 5.5 months of negative growth. 1. https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yield-curve-just-inverted-that-s-huge https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yi... 2. https://www.thebalance.com/what-is-a-recession-3306019 https://www.thebalance.com/what-is-a-recession-3306019
  - amelius 8y ago
    You probably missed the word "obvious" in my comment. I was just saying that if economists don't predict a recession, then the chances are pretty low that parent-poster could successfully predict one based on intuition only.
- rifung 8y ago
  > I'm sure economists/data-scientists have models for that, and if there would be any obvious sign, we would know it by now. There certainly are people with models. The problem is there are way more occurrences of people using some model to say a crash is imminent than there are crashes.
- ionised 8y ago
  because economists are so good at predicting recessions?
ssnistfajen 8y ago
Lots of newly IPO'd tech companies during the last Dotcom bubble survived through it and eventually grew to be prominent companies today. Many of their share prices were down >80% in the years afterwards, but the cash raised through IPOs were crucial to help them survive and expand. An exit via IPO now is better than trying to do a founding round in the middle of a recession when you are low on cash again.
- Judgmentality 8y ago
  > Lots of newly IPO'd tech companies during the last Dotcom bubble survived through it and eventually grew to be prominent companies today. Do you have a list? I know some survived, but my understanding (and I have not actually compiled a list, so I'm not claiming to be certain) is that the overwhelming majority were wiped out and only a handful survived.
  - ssnistfajen 8y ago
    https://www.nytimes.com/2008/11/23/business/23proto.html https://www.nytimes.com/2008/11/23/business/23proto.html 48% of dot-com companies founded after 1996 survived until at least 2004. My own incomplete knowledge of these companies include Amazon and Ebay, as well as a handful of Chinese tech companies such as NetEase, Sohu, and Sina.
    - Judgmentality 8y ago
      > companies founded after 1996 Not trying to be a dick, but neither Amazon nor eBay meets that criterion. That said, thanks for the link.
thisisit 8y ago
> it seems to be common knowledge in the startup community( and everywhere else? ) that a recession is just around the corner. Is it based on gut feeling or something else? Because there has been talk of recession since the last recession. People talking about how the last recession is going to become bigger and bigger. And while stock and other assets form the bigger outer picture where people can see the recession that is not the complete picture. One of the biggest things happens during recession is risk aversion. So, people stop investing in risky assets like stocks and riskier stuff like equity in startups are worse off. This has a knock on effect where companies have less money to spend on stuff. So, they cut down on spending which then affects projects, jobs etc. That said, we don't really have a strict metric to actually gauge if recession has arrived. Some believe in looking at oil prices while others at fiscal deficits. I personally believe in Michael Burry's (from The Big Short) interpretation of recession. In his 2006 letter he said: Take (the company) Nordstrom, a higher-end retailer benefiting from most every macro trend today. Its 11,5% pre-tax margin in 2005 surpassed 10% for the first time since the company went public in 1971, and its margins rose from 1,5% to greater than 7% in the last four years. Net income is five times what it was in 2001, and return on equity rose nearly fourfold. Similar stories abound, though not necessarily to all to this degree. If this is not a peak in a dramatic debt-fueled economic boom, well, it certainly looks like one. We are seeing something similar happen right now. But it certainly doesn't mean that recession is just around the corner, rather it is slowly coming.

AchieveLife 8y ago

Similar experience. A VC told me that "Money is flowing freely right now" and to "take advantage of it". Implicit message was that it won't be this way in the near future and now is the time to jump on the wagon.

learc83 8y ago
VCs have been saying that for years. It won't always be this way, and we will almost certainly will have a recession in the "near future", but whether that's 10 weeks or 10 years away is the real question.
- AchieveLife 8y ago
  I'm not so much concerned about when it will happen rather the inflated attitude expressed by the VC about money. like a child playing with fire.
  - stickfigure 8y ago
    It's kind of their job, no? You wouldn't expect to hear a VC say "Hey, here's a term sheet, but no rush - get back to us when you feel like it, there's always plenty of money later." "Recession is just around the corner" is VC-speak for "Offer available while supplies last! Hurry, operators are standing by!" That doesn't mean it isn't true, of course.
    - AchieveLife 8y ago
      This reminds me of the Mortgage Broker Scene in The Big Short where they interview two brokers. It's their job yet they are contributing in spite of consequences. https://www.youtube.com/watch?v=MesrrYyuoa4 https://www.youtube.com/watch?v=MesrrYyuoa4

learc83 8y ago

It's been common knowledge since the end of the last recession that a recession is just around the corner. It's always common knowledge that a recession is just around the corner. It's a non falsifiable position because if a recession doesn't happen for another 5 years, they'll just say that 5 years was what they mean by just around the corner.

stochastic_monk 8y ago
While saying "it's around the corner" isn't terribly useful, hosts of indicators such as incoming increases in interest rates and stagnating wages support the expectation, and these warning signs have increased over the last two years.
- toomuchtodo 8y ago
  FedEx just posted a terrible quarter and oil just dropped below $50/barrel. To your point, lots of macro indicators [1] flashing red right now that a slowdown is in progressive. I’d bet money (already have technically with SPX puts) that when you look back 6 months from now (the only way to properly asceetain when a recession has started), you’ll see it’s started. These IPOs are too late. [1] https://reddit.com/r/investing/comments/a66a1g/_/ebsgrmv/?context=1 https://reddit.com/r/investing/comments/a66a1g/_/ebsgrmv/?co...
  - slededit 8y ago
    The US is doing great. The rest of the world not so much. It’s really been the story of this recovery since the end of the Great Recession. The US went for Keneysian stimulus and Europe went for austerity. The results have been unambiguous.
    - konschubert 8y ago
      I may be confused, but doesn't the European Central Bank have a zero percent interest rate set at the moment? Isn't that a Keynesian stimulus?

ChuckMcM 8y ago

It seems nearly everyone always believes that a recession, big disaster slowdown, market crash, Etc is "right around the corner." And for the last 10 years they have been wrong in the macro sense :-). That said, this was from the article: "Many of the tech companies that listed shares in the U.S. were based in China, including some of the largest IPOs of the year, such as online-entertainment services company iQIYI Inc. and Chinese e-commerce company Pinduoduo Inc." The Chinese economy is reacting in all sorts of ways to its new larger size, pressure from the US in trade wars, and pressure at home to spread some of the prosperity around. If you take all of the Chinese companies out of the list, the IPO statistic is unremarkable. What I find most interesting is the Unicorn do or die issue. Which is that many may find it impossible to go to the private equity trough again, that bubble does seem to have deflated. Valuations aside, when you have raised over a billion dollars that is real money that somebody is going to miss it if you just roll up the carpets and go home. It felt to me that the collapse of Theranos woke up a lot of 'stupid' money (that is money from people who are investing in a fad but without research). And those folks have said, "Hmm, ok now I'd like to sell my equity in this company you guys say is worth $X, that means you will pay me $Z for my stake right?" Only to find it doesn't work that way, there are no buyers, no liquidity as they say, for those preferred shares. But they can vote and they can tell the CEO, you're not getting another penny from us, we'd like to sell our shares. And that leaves the public markets as the investor of last resort. So it does feel like a Unicorn reckoning is to be had. Where companies will have to prove that a cruel and unemotional market will agree with their lofty valuations. They won't all make it over that hump. As the Vikings might say, "There will be songs sung about these days."

grey-area 8y ago
We're already in a correction, in the macro sense, and we are entering a bear market. It's far too late for successful IPOs.
- 0x54D5 8y ago
  What is with this weird assumption that the recession will never come? On average since the founding of the nation every 10 years or so we have had some kind of a recession/economic slowdown. It's coming whether or not you think it is.

grey-area 8y ago

The crash has already begun, a global recession will follow after but that won't be till later next year. We're in a correction and entering a bear market. https://finance.yahoo.com/chart/%5EIXIC https://finance.yahoo.com/chart/%5EIXIC Stocks like Amazon and Apple have lost up to 30% in the last few months, and Nasdaq has seen steep declines since the summer. So yes, earlier this year was a good time to IPO. Talking about exiting now with an IPO is definitely a little late, and I pity companies like Uber which have one scheduled for next year.

Bombthecat 8y ago
Germany shrunk already last quarter.if they shrink another quarter it is officially a recession.
- grey-area 8y ago
  It's looking like recession globally, doesn't look like anywhere is going to escape this.
jquery 8y ago
I think Uber is uniquely positioned to weather a recession, its business has counter-cyclical properties... in a recession when people are losing jobs, it's easier to hire drivers and induce demand via lower prices. That stands in opposition to ad-based tech companies which seem to be hyper-cyclical.
- grey-area 8y ago
  ad-based tech companies which seem to be hyper-cyclical I agree ad-based tech companies are going to be really hurt by this recession. So Facebook, Twitter and Google will suffer, but particularly Facebook and Twitter may not survive the next few years. Smaller tech companies based on affiliate or advertising revenue won't stand a chance. I disagree that Uber is uniquely positioned to weather a recession. IMO they are too early - when we reach self-driving cars this type of company will be able to expand globally and prosper, but Uber is too early to do that, they're going to have to keep trying to make money with a huge host of freelance drivers and all the problems they bring (regulatory, cost, unions etc). They just raised $2 Billion on a 120B valuation, but they're still losing huge amounts of money per year. Uber lost $1 billion in the third quarter 2018. Those are astronomical losses, that's around $4B a year. I don't think they have any chance of hitting a profit in a recession, they may survive, but they're going to squander huge amounts of money to do so.

standerman 8y ago

There seems to always be fear mongering by people who benefit from the "opportunities" created by the suffering of those most vulnerable whenever there is a sufficient amount of fear, uncertainty, and doubt pumped into the public mind to create an economic pull back. Or maybe they are Russian agents attempting to attack the US economy? Either way, the best advice is generally: don't read the comments, there's too much toxicity, manipulation, and disinformation

ssnistfajen 8y ago
TIL that WSJ, Bloomberg, BAML, and a plethora of financial institutions are all "Russian agents attempting to attack the US economy". Reading the comments was clearly a mistake as the paranoia has gotten completely out of control.
- standerman 8y ago
  Those organizations are composed of individuals. There are also many ways to influence people's perspectives, often without them realizing.

ed_balls 8y ago

It's not "recession around the corner" as a main driver. Market is great now, but that will change when they interest rates go up, hence people wanna catch this boat before it sails.

rootusrootus 8y ago
Market is great now? It's been going down steadily for several months, is nobody paying much attention aside from active investors? Today SPY just busted through it's 52 week low.
- ed_balls 8y ago
  When companies are planning IPOs they do it months before. Was there a better time in the last 10 years?

davidw 8y ago

I think this is the thinking: get while the getting is good, before the Trump Slump hits.

amelius 8y ago

> that a recession is just around the corner. I'm sure economists/data-scientists have models for that, and if there would be any obvious sign, we would know it by now.

jklein11 8y ago
A model isn't a crystal ball, it is a way of formally describing something using mathematics. A model could tell you that a specific set of conditions that preceded a recession have occurred again. One example of this would be an inverted yield curve.[1] A recession is when an economy declines for at least six months.[2] I guess the best predictor of a recession is 5.5 months of negative growth. 1. https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yield-curve-just-inverted-that-s-huge https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yi... 2. https://www.thebalance.com/what-is-a-recession-3306019 https://www.thebalance.com/what-is-a-recession-3306019
- amelius 8y ago
  You probably missed the word "obvious" in my comment. I was just saying that if economists don't predict a recession, then the chances are pretty low that parent-poster could successfully predict one based on intuition only.
rifung 8y ago
> I'm sure economists/data-scientists have models for that, and if there would be any obvious sign, we would know it by now. There certainly are people with models. The problem is there are way more occurrences of people using some model to say a crash is imminent than there are crashes.
ionised 8y ago
because economists are so good at predicting recessions?

ssnistfajen 8y ago

Lots of newly IPO'd tech companies during the last Dotcom bubble survived through it and eventually grew to be prominent companies today. Many of their share prices were down >80% in the years afterwards, but the cash raised through IPOs were crucial to help them survive and expand. An exit via IPO now is better than trying to do a founding round in the middle of a recession when you are low on cash again.

Judgmentality 8y ago
> Lots of newly IPO'd tech companies during the last Dotcom bubble survived through it and eventually grew to be prominent companies today. Do you have a list? I know some survived, but my understanding (and I have not actually compiled a list, so I'm not claiming to be certain) is that the overwhelming majority were wiped out and only a handful survived.
- ssnistfajen 8y ago
  https://www.nytimes.com/2008/11/23/business/23proto.html https://www.nytimes.com/2008/11/23/business/23proto.html 48% of dot-com companies founded after 1996 survived until at least 2004. My own incomplete knowledge of these companies include Amazon and Ebay, as well as a handful of Chinese tech companies such as NetEase, Sohu, and Sina.
  - Judgmentality 8y ago
    > companies founded after 1996 Not trying to be a dick, but neither Amazon nor eBay meets that criterion. That said, thanks for the link.

thisisit 8y ago

> it seems to be common knowledge in the startup community( and everywhere else? ) that a recession is just around the corner. Is it based on gut feeling or something else? Because there has been talk of recession since the last recession. People talking about how the last recession is going to become bigger and bigger. And while stock and other assets form the bigger outer picture where people can see the recession that is not the complete picture. One of the biggest things happens during recession is risk aversion. So, people stop investing in risky assets like stocks and riskier stuff like equity in startups are worse off. This has a knock on effect where companies have less money to spend on stuff. So, they cut down on spending which then affects projects, jobs etc. That said, we don't really have a strict metric to actually gauge if recession has arrived. Some believe in looking at oil prices while others at fiscal deficits. I personally believe in Michael Burry's (from The Big Short) interpretation of recession. In his 2006 letter he said: Take (the company) Nordstrom, a higher-end retailer benefiting from most every macro trend today. Its 11,5% pre-tax margin in 2005 surpassed 10% for the first time since the company went public in 1971, and its margins rose from 1,5% to greater than 7% in the last four years. Net income is five times what it was in 2001, and return on equity rose nearly fourfold. Similar stories abound, though not necessarily to all to this degree. If this is not a peak in a dramatic debt-fueled economic boom, well, it certainly looks like one. We are seeing something similar happen right now. But it certainly doesn't mean that recession is just around the corner, rather it is slowly coming.