CARY – Considering the recent bank failures, reductions in venture capital, falling valuations, big tech layoffs and a potential world conflict with China looming, many entrepreneurs are reconsidering the launch of a startup at this time. To the contrary, I believe now may be one of best times ever to launch a new tech venture. Consider this.
Lack of venture capital
Although less deals are getting done now, capital is still abundant for good teams and innovative ideas. Fund managers who have recently raised a fund, like Cofounders Capital, are obligated to invest that capital regardless of market conditions. For example, we are on track to close two new investments this month. Early-stage funding is the least affected by economic slow downs and I see deals getting done every month.
Valuations may have returned to normal levels this year from the unsustainable highs of last year but they are not “low” by any means. Entrepreneurs today tend to be too focused on valuation. There are many other factors that are equally and sometimes more important than valuation such as getting the right team and funding partner in place focused on the right market and plan. The real number that entrepreneurs should be focusing on is how much money they will pocket when they exit their venture.
Poor economic conditions
Although the economy has shown signs of weakening, most economists predict a soft down curve and quick recovery at least in the US. This can have some benefits for tech startups. I have argued for the last few years that hiring talent has become the biggest challenge startups face. In the last two months I have seen more highly qualified resumes come across my desk than in all of last year. Now is a much better time for startups to recruit the skills they need and the team that will take them all the way.
Although companies may be dealing with contracting budgets, they are also becoming more interested in solutions that increase productivity, lower costs, and create efficiencies. Several of our portfolio companies are ahead of plan this year finding more demand for their solutions in a soft downturn than in previous boom years.
Most ventures that start this year will not exit for at least five years. Market highs and lows tend to be cyclical. Startups that launch this year will most likely find themselves in a boom market by the time they are ready to exit. Exiting during a market high is much more important than when entrepreneurs start their ventures.
If one looks, there are always good reasons not to launch a startup and tons of things that could go wrong. Yet, startups persist. In any market, funding and success is always within reach for the most innovative and persistent entrepreneurs.