If you’re looking for doom and gloom, it’s enough to open any newspaper or tech blog to convince yourself the sky is falling and that the ‘good times’ are never coming back. In Israel at least, the trickle of layoffs has become a steady stream. Unicorns weren’t an exception and public companies fared even worse. In crypto, it all seems to be going sideways.
In reality, cycles are normal in business in we’re in the midst of a correction that will hopefully do what it says on the tin: “correct” a lot of the bad practices that were embraced in 2020-2021 when capital was cheap and plentiful.
We need to remind ourselves an important fact: in every crisis there’s also opportunity. Embracing a positive attitude is part of what’s going to help us get out of this mess, and as an early stage investor, I’m optimistic by nature. So without further ado, below are three reasons founders and VCs can be optimistic about the future, even in today’s market.
1) More dry powder than ever
There has never been more capital available to invest in startups in the past decade, despite the caution in deployment. According to data firm Preqin, venture capital AUM (assets under management) reached a record of $2 trillion. It’s comes down a bit given the performance of public markets, but venture capital dollars looking for deals are higher than pre-pandemic.
It’s not just that there is more capital in the market, but also that the venture capital market is much more developed. The are different types of investors involved in venture, there are different financial products offered to venture backed companies and there’s a more active M&A market for venture than ever before.
2) Q2 ‘22 was record breaking in terms of startups fundraising in EMEA
Deals are still being made – maybe not in 21’ prices, but founders are guaranteeing runway to survive till the end of 2024 if they can. As mentioned in my post “Take Five – Venture” earlier this week, while deal volume is down more than 30% in Q2 in the US, that’s not the case in EMEA. European startups raised record amounts in Q2 2022, with June being particularly active.
3) The opportunity for tech and innovation has never been bigger
Think about it: every industry is being transformed with tech. Innovation never stops and the potential to reach people/clients is bigger than ever. In a market where corporates are also looking to reduce costs, startups can take advantage of their nimble size and ability to move fast and take risks.
Remember: diamonds are formed under pressure
I’m not suggesting you put on rose-coloured glasses and bury your head in the sand until the storm passes. Preparation is key. In order to survive the next 12-18 months, it’s imperative to take action now and make the necessary steps to survive this period, and come out stronger on the other end. Cycles are normal, and I will risk sounding cliche, but need I remind you that some of today’s best companies were built in a recession?
I will end in a quote from an excellent post by Elad Gil on the state of startups in summer 2022:
It is possible with ongoing tightening of monetary policy (interest rate hikes and QT) that times will get worse. In that case you can expect further acceleration of layoffs and more valuation drops. Even if that were to happen, this is still one of the best eras in history in which to build a company. Capital and information are still broadly available, opportunities abound, and we are undergoing a generational shift to technology underlying all industries in a variety of ways.
Startup Markets, Summer 2022 Edition, Elad Gil
We’ve been through worse, so keep calm and carry on!
I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.
I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.