Yes and no. Alright, if you’ve got a mobile app that you want to sell, it’s going to be a lot harder for you. But if you have a truly innovative and courageous product, you’re good to go. Let’s take a real look at what’s happening in startups, the economy, and the VC drought.
What’s a K-Shaped Recession?
The good do better and the bad do worse; that’s capitalism, baby.
Currently, we’re in what you would call a K-shaped recession, but most people don’t want to talk about that because of the widespread and chaotic implications that might have.
A K-shaped recession is a recession in which the poor get poorer and the rich get richer, in extreme. You’ve already seen it. People who make under $50,000 a year are getting crushed by inflation. But your friends in tech just got like eight raises, didn’t they?
Money is bleeding all over Silicon Valley. But we also know that major companies are axing employees left and right. What are we to make of this strange and, let’s face it, terrifying dichotomy?
The reality is that we’re on the precipice of dramatic digital transformation. Money is coming into digitization and tech, while it’s absolutely bleeding from everywhere else. People are pulling back on spending (including VC funding) because they’re terrified of the upcoming recession. At the same time, the recession is by far hitting the poor, working class more than it is hitting the rich—the rich have only gotten much, much richer.
What Does That Mean for Venture Capital?
A lot of private investors are holding back not because their balance sheets are going south (which they are) but because of psychology. Yes, the market is crashing. But any actual investor understands that the “market crashing” is the time to buy.
But it’s an unprecedented time. This means people can’t really anticipate who is going to do well or who is going to do poorly. Before you load up that Robinhood app, think about how wrong Reddit was about most of their stocks. Any time an individual thinks they can “disrupt” the stock market, well. It’s probably not going to go in the direction they expected.
It’s not a drought, it’s a dry season. The money is there to invest. The rich are getting richer. So, eventually, the dams are going to break. For now, though, investors are being conservative with their money because they don’t know what direction the water’s going to go. And who’s going to get wiped out.
Getting Funding for Your Startup
VCs are still going to invest in companies. You need to be the best company for their dollar. It’s getting harder to get capital, but that doesn’t make it possible. Don’t ignore the temperature. Address, head on, why VCs want to get on the ground floor with your technology now. Address the fact that the economy means they are getting a fantastic deal on your company that they could never get during more auspicious times. Talk to them about how far their dollar can go right now.
People are still investing. But they’re being rightfully cautious. The K-shaped recovery isn’t pure good for the people on the upper angle of the K; it’s bad for everyone. It builds a shaky economy that could collapse at any time. But it also means the people at the upper angle have more relative wealth to invest than ever.
So, go after those dollars. But be smart. A VC drought means you have to be the best pitch available.