The following is reprinted from Jason’s List, Jason Calacanis’s email newsletter. Sign up here. (The) Startup Depression .Since stock market gyrations and the elections seem to be making everyone rightfully nauseous and depressed, I thought I would take this email to discuss the biggest ramifications of these challenging times: depression.
It’s my believe that the economic downturn will be much worse than it is today, and that 50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.
Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.
Now, I could be totally wrong. No one can guess or time the markets perfectly. However, planning for the worst is a virtuous idea, so I encourage you to read on.
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I think he is totally wrong.
Investors fleeing the stock market is good for ventures looking to raise capital either via debt or selling equity. Profitability will take longer BUT investors are looking for returns.
I know this because I got called by an investment group I know yesterday and spent over an hour on the phone because they now have a major influx of investors looking to invest in private businesses and startups that show promise, especially if the startups are willing to take loans at 10% an up.
Downsizing will happen of course, but leaner is always better anyway and bloated startups take longer to achieve profitability.
I welcome this stock market in a way because it creates opportunity for people like me (I will raise more money for my venture and I can buy on the way down like Warren Buffett and reap the rewards when I sell in 10 years)