The Tech Bubble 2.0 is Cooling: How to Weather the Coming Slowdown

August 27, 2015

10:00 am

History is doomed to repeat itself: just as the golden years of Silicon Valley 1.0 ended in horrifying fashion in the 2000-1 bust, the boom times of the 2010-2015 tech bubble will end very soon. Always listen to the naysayers but with a caveat: the end is coming, sure, but it will be a slowdown not a collapse. Here are some tips to how to weather the coming slowdown with a burgeoning startup:

Raise Capital Now, Even if You Don’t Need it

Timing is the greatest ally of startup success, time is its greatest enemy. The best thing you can give yourself in a downturn is time: time to prove out the business model, time to build sustainable revenue, time to pivot if necessary. I took my best startups on a capital run from January through this summer to give them 18-24 months of runway to grow and, while that was probably the best time to build your Fort Knox reserve, now is still a good time to go for it. We are still 6 months away from the “oh s***” moment where folks batten down the hatches.

Focus on Sustainability and Profitability

I think this is good advice, regardless of the downturn. For a long time, the focus has been on ‘grow, grow, grow’ even if growth meant from no-revenue, worthless users who would never pay for a value-add product. In slower periods, the companies that are real have the near-exclusive access to capital and, the deeper into the slowdown you go, real is defined as: is this a real business, with customers paying for a product that actually adds clear value and is being delivered in the market?

If You are Just Starting, Check Yourself and Make Sure You are Really Committed

Fast periods breed trendiness and trendiness breeds a sloppy, complacent tendency to fund companies that can’t survive on their own without capital infusions. This often usually involves backing founders who are doing a startup because it’s the cool thing to do, not because they want to succeed at all costs and would do anything – including put a second mortgage on the company credit card – to do it. Piles of money can mask the fat but in the coming slowdown, the fat will bleed off and leave only the founders who have truly valuable ideas and will push themselves to the absolute limit to make them a success. Are you one of them?

Image Credit: Flickr/Ferran Jordà

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I am an entrepreneur, angel investor, and early-stage VC living and working in New York City.

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