A recession could potentially benefit startups by making venture capital more attractive than traditional investments. During a recession, you expect the Fed t

A recession could potentially benefit startups by making venture capital more attractive than traditional investments. During a recession, you expect the Fed to lower interest rates, making traditional bonds less attractive. Stocks won't be very appealing either, since they tend to slide 20-30% in a recession. The once-enormous market for exotic structured investments (e.g. CDOs, ABS, SIVs, CMOs, whatever) has nearly dried up. People will need somewhere to put their money. Some will turn to hedge funds and private equity. Others will turn to distressed debt funds, seeking to pick up the pieces of the recession. I'm sure plenty of people will turn to venture capital as well. EDIT: That being said, I don't think it matters all that much whether or not we see a recession. Economic growth certainly isn't going to be great over the next year or so, but does it really matter if the GDP changes by +1% or -1%? All that's needed for a recession is two consecutive quarters of negative GDP growth. I think this is quite likely, but I doubt we will see real pain. Recent economic stats have been holding up despite the pressure from housing. Inflation remains moderate in the high 2% range. The Paulsen subprime rate freeze should help reduce foreclosures and slow house price depreciation. We'll see how it goes.