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Filtering by Tag: crash

Crash and build.

Carl Fritjofsson

Dramatic times! The Chinese stock market is clearly going through some turmoil and I wouldn't want to try to outsmart this as the Wikipedia article is still being written on the topic. And the turbulence is being spread across the world and taking its toll with dramatic drops in US stocks. But not to worry! This could lead to the market adjustment in the tech space many of us have been expecting, and some of us even hoping for... 

The repercussions of public markets going south in the world of venture capital and startups have been articulated well by people like Mark Suster who yesterday explained a coming period of uncertainty. LPs (= investors into VC funds) will wait and see where the world is going meaning VCs will have a harder time raising new funds. A harder climate for VCs to raise new funds means that current funds will be invested more carefully, leading to financing rounds taking longer to close for startups. Late stage mega rounds will most likely also dry up and the tech bubble would have to hold its breath if the unicorns of today have to get by on their own. 

But here are the good news! First of all I'm looking forward to the macro economy adjusting housing prices in the two cities I'm exposed to - San Francisco and Stockholm. In SF these days not only are you required to pay a 💩-load, but competition of even getting access to an apartment is so fierce you may have more luck winning the Powerball Jackpot. And in Stockholm, where the government oddly enough (!) still is not requiring citizens to pay off instalments of their mortgages at the same time as running the country with negative interests, people are so over their head in debt they will all have to have been an early employee at Spotify to cover for it over a lifetime.  

And secondly, in the world of startups a downturn will force all startups to sharpen their game and really focus. For all of us who are long in this game this should be considered a positive thing. Less random meetups to go to, wantrapreneurs will find other things to do, and entrepreneurs really get to test their skills. You will have to do more with less, and will have to be creative in how to build your company during lean times. We have seen this a few times before already. After the 90's dot com bubble, only a few companies remained. Those companies where build by the true masters of entrepreneurship. They won against all odds, and developed and refined skills during those years, which have been proved incredibly valuable...and even scalable (the "PayPal Mafia", with PayPal being one of the dot com survivors, attributes much of their success to struggles they faced during those hard times). We also have more recent examples with companies like Dropbox and Airbnb, who both were founded during the last financial crash of 2008. Against all odds and despite Sequoia's well-renowned R.I.P. Good Times, they still crushed it and went on to build massive successful companies. 

Less funding simply means the best will survive. It's still to be determined if the Chinese crash will have implications on our little tech world, but once early stage financing becomes more scarce you can only do two things to weather the storm: ⬇️ burn rate and ⬆️ revenue. I'd advice you to start thinking of both already today. A downturn can be a healthy thing for the entire ecosystem so let's be excited about the future to come and the rockets to build! 👊💪