August 19, 2016
There's no great time to launch a startup. They can always fail, and fail fast, no matter how much effort you put in. But if you have a great concept, what's the best economic landscape to start up shop? Is it better to launch a startup when VC investment is booming, and everyone's looking for you to succeed? Or is is better in a downturn, when funding is shriveling up and people aren't even sure about the concept of a “startup” at all anymore?
Conventional wisdom says the first option, a healthy economy, is the best. But who said the tech community was conventional?
The Sub-Optimal Time Is the Best
Launching during a poor economy for startups will mean that VCs are more careful, more cautious, and more demanding. For a great startup, that's a good thing. For a bad one, it's terrible. Basically, a poor economy will supercharge the successes and bulldoze the failures. The system works best when everyone is cautious.
Aaron Burcell, writing for Mediashift, explains why this counter-intuitive fact holds true:
“Some of my favorite, most successful startup experiences happened in election years or following a major downswing in public markets. These conditions are sub-optimal for startup funding but ripe for disruption. During these times, venture investment becomes a very considered transaction, and only really good ideas receive backing. As portfolios shrink in number of investments, you’ll get the right level of strategic input and attention from your investors.”
Which Is Now. So, Get Launching.
The economy is on a downturn. 30 percent of all U.S. unicorns will sell for under a billion, for instance, even though they're getting the majority of 2016 funding from cautious VCs who want a “sure thing.”
Again, from Burcell:
“KPMG’s Venture Pulse Report shows that we’re in a period following a pullback in total investments, but with more money going into previously-funded companies. Additionally, we have Brexit and Trump looming. The conditions are not optimal for receiving venture funding, but the startups born this year will be really strong.”
Have a strong concept? Launch a startup. Not sure if you are? Hang back and try another iteration. If you think you'll fail, you definitely will. Which could be why the tech world has so many egotistical CEOs, come to think of it.
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