Starting a Company in a Recession

Sierra Ventures Managing Partner Mark Fernandes participated on a panel at Collision’s Annual Conference with Renata Quintini from Renegade Partners, Ravi Viswanathan from NewView Capital, and moderated by Kimberly Weisul from Inc. magazine to discuss starting a technology company in an economic downturn.

Key Takeaways

 

“Technology waits for no one… if you’re starting a tech company, this is as great a time as any.”

While this might not be the best time to start a restaurant, many technology-focused businesses are thriving. Every crisis has created or accelerated a wave of technological advancements. If 9/11 gave birth to the cloud and the 2008 Global Financial Crisis accelerated innovation on it, the 2020 COVID pandemic will bring digital transformation in a hurry. Disruptions in payments, healthcare, remote work, and the supply chain were a few of the areas discussed.

“Recessions cultivate strong financial discipline in startups and greater resilience.” 

Companies born in tight economic environments can be better equipped to handle adversity and develop the right culture and mindset around financial discipline. As Y Combinator Co-founder Paul Graham aptly said, “startups are the cockroaches of the corporate world.” They are nimble, hard to squash, and can operate in tight spaces while bigger companies find it difficult to adapt to the new conditions. Operational efficiency is key and a recession forces companies to quickly focus on it.

“There are many advantages to starting a company in difficult economic times.”

During a recession there is an abundance of great talent available, marketing is a lot cheaper, and companies are required to focus intently on product-market fit which leads to a more successful business long-term. Customers are doing a lot of things now that they didn’t think were possible and a major change in habits and spending are taking place. Startups are in a great position to provide better products cheaper and faster. 

“VCs are still actively investing but startups have to adapt to new timelines and criteria.”

There is still plenty of money available for great ideas, especially at the very early stage. While the pandemic may have changed the way and timeline for how things get done, investments are definitely being made. Sierra Ventures has completed 6 investments since shelter in place started in March. The panelists mentioned that it can be more challenging to get to know founders and teams over video calls and highlighted the increased importance of references.

“At the end of the day, it’s all about whether you’re willing to take a risk.” 

Regardless of market conditions, starting a company is a risky proposition. Some founders may only be willing to take the necessary risks to start a company when things are good, so the panel said that now is the time to get a leg up on future competition. There are a lot of resources available during a recession that aren’t as plentiful in a “bull” market so those who get started now can take advantage of the unique opportunities that a “bear” market provides.

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