Venture Capital & Recessions

Lots of talk in the venture business, as everywhere else, about the impact of recessions on the business. In general, recession vintage venture funds have been among the better-performing funds. Here are some related points:

  • Recessions reduce the flow of startups
  • In weak economic times you have to fund early-stage companies for the cycle, assuming no-one will follow on
  • Some of the best deals are done in and around recessions: good teams, good prices, and exiting during an upturn
  • Timing venture capital investments, given its long horizon, is like trying to use a supertanker as water-ski boat

The difference this time? People aren’t thinking through what troubles at institutional investors is likely to do to the flow of capital to the venture business. Because the VC GP winnowing that is currently underway is going to accelerate.