Why Today's Bullish Economy Is Bad for VCs, But Good for You

Magazine Contributor
Entrepreneur Contributor
2 min read

This story appears in the May 2014 issue of . Subscribe »

I can't wait for this economy to take a dive. Yep, you heard me. That's because my industry, venture capital, depends on it. There is nothing that increases the number of breakthrough startups to invest in like a miserable economic downturn. In fact, nearly 60 percent of the Fortune 500 companies were launched during a down market, according to the Kauffman Foundation.

Bear with me as I explain why this makes sense and is good for you. When everyone is flush with cash and feeling secure in their gigs, inertia prevails; there's no reason to strike out on one's own. In good times, top talent gets compensated accordingly; hell, everyone has a better-than-even chance of getting a raise.

But when the market tanks, that's when bonuses freeze, budgets shrink and futures get fuzzy. It's also when the forward-thinking start talking treason about "what they could be" if they weren't chained to the corporate ladder. At the bottom, ambitious college students searching for a ladder to climb face fewer job offers and start to consider extending their ramen days and building their own companies from scratch. Greeting those brave enough to act on their entrepreneurial aspirations are family and angel investors who are likely spooked by their sinking stock portfolios and are suddenly more open to backing a startup. And that's when guys like me start to take notice.

But with the economy steadily humming along, my job is harder than it was four years ago. Back then it seemed like some new idea, business model or product emerged every week to change the world. Now? Not so much.

I share my lament not to complain but to point out an opportunity for you. Consider this: When your finances are stable and you feel safe, perhaps that's the time to launch a business. There will be fewer competitors fighting for investors and, conversely, more VCs dealing with the entrepreneurial lull. And depending on the product or service offered, you'll face a marketplace that feels flush and more open to trying--and buying--something new.


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