So, here it finally is – everyone said this and everyone knows where we are.
We are here now, and I want argue that right now is a great time for YOUR startup, provided you are going after a real opportunity. Here is why:
- There will be a LOT LESS NOISE.
It seems that seed capital will be more scarce. It seems that it will be harder to raise money from angels and VCs. But maybe not.
Because the markets are cooler, there are will be LESS FOUNDERS starting companies. Anyone who is building off of Tinder or Uber will now think twice or maybe even three times before jumping in. Less noise will be great for the founders with domain expertise, and will build businesses with customers and revenue from day one.
Less noise will also be great for the founders who are going after real opportunities.
Angels and VCs are likely pay a lot more attention to you if you have something real, which they will find awesome.
- Capital efficiency is great for premature startups
One of the traits of great founders is scrappiness. Great founders hack and bootstrap. They find a way to get their company off the ground and prove that it can exist without spending a ton of capital.
Raising a lot of seed capital should not be a prerequisite for starting 90 percent of software startups.
When you start with capital efficiency it becomes part of your core value,and part of your company DNA. This fiscal responsibility will be really helpful as your company gets bigger.
- Professional angels & VCs aren’t going anywhere
Accidental or occasional angels are likely to stop investing. Venture funds that haven’t performed will likely disappear. But professional angel investors and VCs will continue to invest.
In fact, here is a little secret: this is investors’ favorite time to invest, because they will be investing in YOU, the amazing founder, and the opportunity you are going after. MORE IMPORTANTLY, they will be able to get into the deal at a more attractive price.
The keyword is “professional” investors. They do it for a living.
Professional investors will not stop or back down when the market is attractive.
Everyone learned value investing from Warren Buffett and investors in the downturn will go after great founders and great businesses. Great investors are looking to buy low and sell high.
- Lower valuations are better earlier than later
Founders obsess over valuations.
However, raising on a lower valuation early in the company lifecycle is not necessarily a bad thing. It is a lot better to take a valuation hit early in the game than to do a down round.
Two things are important to understand for the founders here:
- a) You have the option to raise less capital at a lower valuation and end up selling the same percentage of your company. Read this awesome post by Fred Wilson for more on this topic.
- b) You are betting that lower valuation now, and over time, it will turn into a higher valuation. It is actually a smart bet when the market is down.
- What starts at the bottom must go up
Markets are cyclical. They go up and down. This is a fundamental law of markets.
Jim Robinson IV, General Partner at RRE Ventures, and also a friend/mentor 20 plus years of venture capital experience explained it best.
He said that startups that rise with the tide make the most money. Healso said that historically, when startups invested in the downturn, returns were significantly better for founders and investors.
It makes perfect sense. If you start on the bottom, grind, and build the business, the tide will turn, and you will end up on the top.
So, really, now IS the best time to start a company, IF you believe that YOUR company is needed, that the business will be profitable and will create wealth.
That’s why we at Techstars NYC are very excited about our Summer 2016 class.
We know that the founders in this class will be even more determined, and will be more focused on capital efficiency and building a real businesses.
If you are one of these founders, we can’t wait for you to apply. We can’t wait to meet YOU.
Image credit: CC by Startup Weekend Compiegne