We are probably in a recession already, but we can’t know for sure for another quarter or so. With inflation on the rise and interest-rate hikes making less money available, it will be some time before things grow again.
In a blog post, Fred Wilson estimates it will be another 18 months before we see any improvement. Key indicators will be a bottoming out of public stock valuations before rising again (e.g. 1980 recession took 3 years to see stocks rebound).
Elad Gil says, “The most likely scenario is 2023 will be a much tougher environment for startups than 2022” in Changing times (or, why is every layoff 10-15%?).
See also:
- The interest rate fallacy shows that actually more money will be available not less as interest rates go up, but the demand side could decline
- Running a startup during a recession a key factor will be the availability of venture capital that is impacted by a recession
Links to this note
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Probability of a Recession (2022 Q3)
The probability of a recession in the near term based on estimates from economists at investment banks.
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Growth in Tech During the Pandemic Was Not Permanent
Prices of tech stocks soared during the COVID-19 global pandemic in part due to growth. Investors were paying 100x ARR multiples for some tech companies. However, that growth was not permanent and we are seeing tech stock prices revert to the mean.
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There have been 115 tech companies with layoffs since April 2022 and a steep increase in May.
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Private Investing Avoids Visible Volatility of Public Markets
Private investment firms like venture capital and private equity are in the business of avoiding visible volatility of public markets. Because private assets don’t trade and investment managers go to great lengths to keep them from going down, assets appear to mostly appreciate (there are down rounds and losses, sometimes the chicken comes home to roost, but for the most part this is true) even when public markets are tanking.