It’s 7pm, Tuesday night. A budding founder is sitting in their living room facing their laptop. “Should I go ahead with this?” they ask themselves, pondering about the stagnant economy and its impact on the demand for their not-yet-existing product. “Or maybe I should take a stab at this startup idea on the other side of the crisis?” They wonder as they weigh risk and reward.
While you might think this internal dialog is taking place in 2020, it is reasonable to assume that such worries kept the founders of Cloudflare, Uber, Square, JFrog, Airbnb, and others up at night before they founded startups in shaky times, during a recession. Those ideas became products and then into market leaders, proving that sometimes - bets in uncertain times pay off, big time.
And yet, something is unique about the Covid-19 crisis that we found ourselves living in - a material change in how we communicate, and how we do business - and those can stop entrepreneurs in their tracks. It's been barely six months, but already the pre-corona business is taking on the aura of “remember when.”
Not too long ago, you would slog down the Ayalon highway (an hour or more ride), get to the office and discuss strategy and action, and go down to meet clients and colleagues in a restaurant or coffee shop. Most people, of course, are no longer doing that. With life moving from lockdown to lockdown, people are now working online and meeting virtually; and going out for lunch or to a bar isn't even possible these days in many places. The times, they have certainly changed.
If you're an entrepreneur looking to start a new company, things have changed even more. Not only is taking meetings in person very difficult (and forget about flying to meet investors), the channels entrepreneurs previously relied upon – trade shows, Meetups, etc. - have all gone by the wayside. Reaching and building relationships with investors, customers, angels, and anyone else entrepreneurs rely on to build their startups is infinitely more difficult now than it has ever been.
Which raises the question – should entrepreneurs wait until things “get back to normal” before trying to build out their dream? Is it possible to make a go of it in the current business climate – or would they be better off waiting? To find out, let’s dissect three common myths about starting a startup in a crisis:
You can’t raise money in a recession
There’s a persistent notion that it may be harder to raise money these days, because investors are likely to be more conservative with their money – especially when it comes to startups. With double-digit unemployment rates, one might think there is a good reason for companies, VCs and angels to hold onto their cash.
But startups with a stellar idea will find a welcome audience among investors since the latter rely on great founders to generate great outcomes. Besides that, VC is a long term game. While earlier in the year, it looked like VC activity had slowed down due to Covid-19, we see a different picture today: VC activity has actually accelerated worldwide and especially in Israel; investments in Israeli companies of all sizes, from seed to series D, rose a remarkable 40% in the first six months of 2020 over the same period in 2019! The numbers show that investors are still backing ideas they believe in and if anything, are open to new categories and new disruption.
No one will buy your product / service in a recession
Naturally, the word “recession” is associated with budget freeze and fiercer competition on resources. But while Covid impacted the economy, its effects have not been negative across all industries. In some cases, the crisis has accelerated existing needs and also brought new business needs to light. For example, while collaboration was already a major part of different companies’ culture, collaboration tools have become mandatory when companies were forced to go remote, and companies like Zoom have benefited tremendously. In the same vein, companies that offer systems for distance education software and services are doing well, too. B2C as well as B2B firms that focus on online sales have seen significant growth during the Covid era, and there's been significant growth in the number of ecommerce startups. In a world where every company is a software company and remote development is the new normal, we also see an uptake in tools improving developer productivity and those that support the creation of applications from anywhere.
There’s no way to tell if your idea will be viable post-crisis
It’s hard to design for a world that one cannot imagine. But really, it’s hard even in “normal times”, as demonstrated in CBInsights’ finding that the top reason for startup failure is lack of market need for the offering. Founders always face imperfect information and need to make reasonable assumptions, while trying to figure out where the market is headed next - not necessarily it’s currently at. To some extent, waiting until all the answers are clear and obvious means you’re too late. And although things are difficult now, most of us realize that this too shall pass – and when it does, those who prepared the groundwork for the products and services that will be in demand once the crisis passes will be in position to reap the benefits of their effort.
As the outcomes of the unicorn founders mentioned above show us. starting a startup in a “bad time” can actually be really good. Perhaps it’s the culmination of unique circumstances that makes way to innovative solutions and disruptive categories for the realities of tomorrow. And entrepreneurs who have amazing ideas, a strong vision, the know-how, and the ability to execute, can succeed even in the most challenging of circumstances.
Written by: Oren Yunger, VC investor at GGV Capital
