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I think early-stage VC’s should take a Keynesian approach and should invest more heavily in recessed periods. With 35+ million Americans unemployed there are m

I think early-stage VC’s should take a Keynesian approach and should invest more heavily in recessed periods. With 35+ million Americans unemployed there are more founders available than probably ever before. In the next 6~ months rent prices should decrease (or mass vacancies depending on your area). Now is the time to invest in the economy. Not when it’s too expensive.

deleted 6y ago
[deleted]
patrickk 6y ago
> I think early-stage VC’s should take a Keynesian approach and should invest more heavily in recessed periods. Why would they do this? They're not a charity. They'll only invest more if they think there's more returns to be had. > With 35+ million Americans unemployed there are more founders available than probably ever before. That may be the case, but VCs much prefer to bet on previously successful entrepreneurs, sometimes on their new project sight unseen. The amount of unemployed bartenders or airline employees getting VC money will be very low.
MattGaiser 6y ago
> With 35+ million Americans unemployed there are more founders available than probably ever before. The job losses are overwhelmingly in low skill, low education required jobs. Their experiences and domain knowledge are in industries that are currently crippled. Most just wouldn't have the skills or expertise to found scalable companies.
- _curious_ 6y ago
  Skills and expertise can always be learned and acquired.
  - MattGaiser 6y ago
    Yes, but having some already is usually required for an investment.
  - decompiled_dev 6y ago
    With many years of practice and study.
foobiekr 6y ago
we aren't there yet, though. a lot of successful startups were founded during recessions. everything is cheaper in a recession - office space, perks, salaries, equity %, etc. this helps every $ go farther. but we aren't there now and may not be this round. it's a unique event. I can't imagine starting a company now and having the whole team be remote when your #1 goal in your series A is to execute as fast as possible and communication is one of the key limiters.
- deleted 6y ago
  [deleted]
gnicholas 6y ago
Benefits of starting a company in a recession: lower rents, cheaper salaries. Downsides: lower consumer and business spending. If you’re trying to start free and grow that base, then perhaps it’s good to start in a recession. But if having paying customers is important, the headwinds could be outweigh the tailwinds. Another consideration: does your company align with how people are reallocating their time/money during the recession? If you can get a piece of recession spending, good for you. But if you’re a general-purpose product then you’re probably in for a tough ride.
- marcosdumay 6y ago
  If you are trying to disrupt a market, a recession is exactly when your consumers are most willing to switch into a supplier with lower margins. If you are going into a winner takes it all market, a recession will give you the lowest amount of competition. (But then, it's just because it's contrarian, if everybody invested in recessions, this wouldn't be true.)
  - dralley 6y ago
    And if you're early enough in the development process, as in pre-launch, the marketplace won't be much of an impediment.
- MiroF 6y ago
  > Benefits of starting a company in a recession: lower rents, cheaper salaries. This recession is potentially so short and wages are so sticky that I'm not sure that this actually will pan out.
surfmike 6y ago
On the whole though you’d expect less people to have enough money to be an early stage VC during a recesssion. I think those that can afford it will definitely be looking for opportunities.
pge 6y ago
If VCs were investing from a balance sheet or their own accounts, I think this would be true. And my experience in the 2000/2001 and 2008 recessions was the funds that had ready access to capital invested significantly (and got good returns) in those down cycles. The issue, however, is the LPs. The capital that VCs invest comes from LPs that are large investors like pension funds and college endowments. These investors have very meaningful exposure to the public markets and broader economic trends, and when those take a big hit, the LPs put pressure on VCs not to make capital calls (reducing access to capital). In addition, LPs are often very reluctant to increase their exposure to VC/PE in down turns and commit more to illiquid assets. As a result, VCs don't want to try to raise a new fund when LPs are pulling back. So they try to stretch out the current fund as long as possible. Last, in a down turn, existing portfolio companies may not have access to outside capital, so funds may end up deploying or reserving more capital into the existing portfolio rather than to new investments. Those external drivers combine to result in a slower pace of investment for VCs during a recession.

deleted 6y ago

[deleted]

patrickk 6y ago

> I think early-stage VC’s should take a Keynesian approach and should invest more heavily in recessed periods. Why would they do this? They're not a charity. They'll only invest more if they think there's more returns to be had. > With 35+ million Americans unemployed there are more founders available than probably ever before. That may be the case, but VCs much prefer to bet on previously successful entrepreneurs, sometimes on their new project sight unseen. The amount of unemployed bartenders or airline employees getting VC money will be very low.

MattGaiser 6y ago

> With 35+ million Americans unemployed there are more founders available than probably ever before. The job losses are overwhelmingly in low skill, low education required jobs. Their experiences and domain knowledge are in industries that are currently crippled. Most just wouldn't have the skills or expertise to found scalable companies.

_curious_ 6y ago
Skills and expertise can always be learned and acquired.
- MattGaiser 6y ago
  Yes, but having some already is usually required for an investment.
- decompiled_dev 6y ago
  With many years of practice and study.

foobiekr 6y ago

we aren't there yet, though. a lot of successful startups were founded during recessions. everything is cheaper in a recession - office space, perks, salaries, equity %, etc. this helps every $ go farther. but we aren't there now and may not be this round. it's a unique event. I can't imagine starting a company now and having the whole team be remote when your #1 goal in your series A is to execute as fast as possible and communication is one of the key limiters.

deleted 6y ago
[deleted]

gnicholas 6y ago

Benefits of starting a company in a recession: lower rents, cheaper salaries. Downsides: lower consumer and business spending. If you’re trying to start free and grow that base, then perhaps it’s good to start in a recession. But if having paying customers is important, the headwinds could be outweigh the tailwinds. Another consideration: does your company align with how people are reallocating their time/money during the recession? If you can get a piece of recession spending, good for you. But if you’re a general-purpose product then you’re probably in for a tough ride.

marcosdumay 6y ago
If you are trying to disrupt a market, a recession is exactly when your consumers are most willing to switch into a supplier with lower margins. If you are going into a winner takes it all market, a recession will give you the lowest amount of competition. (But then, it's just because it's contrarian, if everybody invested in recessions, this wouldn't be true.)
- dralley 6y ago
  And if you're early enough in the development process, as in pre-launch, the marketplace won't be much of an impediment.
MiroF 6y ago
> Benefits of starting a company in a recession: lower rents, cheaper salaries. This recession is potentially so short and wages are so sticky that I'm not sure that this actually will pan out.

surfmike 6y ago

On the whole though you’d expect less people to have enough money to be an early stage VC during a recesssion. I think those that can afford it will definitely be looking for opportunities.

pge 6y ago

If VCs were investing from a balance sheet or their own accounts, I think this would be true. And my experience in the 2000/2001 and 2008 recessions was the funds that had ready access to capital invested significantly (and got good returns) in those down cycles. The issue, however, is the LPs. The capital that VCs invest comes from LPs that are large investors like pension funds and college endowments. These investors have very meaningful exposure to the public markets and broader economic trends, and when those take a big hit, the LPs put pressure on VCs not to make capital calls (reducing access to capital). In addition, LPs are often very reluctant to increase their exposure to VC/PE in down turns and commit more to illiquid assets. As a result, VCs don't want to try to raise a new fund when LPs are pulling back. So they try to stretch out the current fund as long as possible. Last, in a down turn, existing portfolio companies may not have access to outside capital, so funds may end up deploying or reserving more capital into the existing portfolio rather than to new investments. Those external drivers combine to result in a slower pace of investment for VCs during a recession.