How Will This Economic Downturn Affect Startups?

As the economic downturn begins to spread from sub-prime borrowing to the current credit contraction (and I’m not ready to say the R-word yet), it seems unlikely that startups will be immune from an economic storm that may be felt internationally and across various asset classes. Fortunately, advances in technology mean that startups can launch with little capital, thereby reducing risk to themselves and/or their investors. But unfortunately, not all startups can be bootstrapped.

What effect do you believe the current economic downturn will have on the viability and number of startups?

You Might Also Like:  How Will You Bootstrap in 2009?
Startup Issues

10 thoughts on “How Will This Economic Downturn Affect Startups?

  1. I think this is an interesting post. Up here in Seattle, there's been a bit of discussion on what it means for all the internet startups. My blog has some links to discussions in John Cook's Venture Blog as well as a local startup CEO's provocative predictions: http://www.coderights.com/2008/01/web-20-crash.ht

    Generally, I think it might be overstated. However, a lot of the bigger, higher traffic startups as very dependent on advertising revenue. Often those dollars dry up in a recession, so…? I guess it depends on just how dependent they are!

  2. I think this is an interesting post. Up here in Seattle, there's been a bit of discussion on what it means for all the internet startups. My blog has some links to discussions in John Cook's Venture Blog as well as a local startup CEO's provocative predictions: http://www.coderights.com/2008/01/web-20-crash.ht

    Generally, I think it might be overstated. However, a lot of the bigger, higher traffic startups as very dependent on advertising revenue. Often those dollars dry up in a recession, so…? I guess it depends on just how dependent they are!

  3. I think the usual rules apply – startups that require hefty capital up front will dwindle in numbers, but those startups that do no may flourish. If various companies cut employees, particularly high-end employees, there may be few barriers to those individuals going out on his or her own. When all you need is your PC, phone, web access, a printer, and a little office space to get going, there is no reason this downturn can’t rebound with a whole slew of new businesses.

  4. […] Startup Lawyer is asking how the current economic downturn will affect startups? There are a number of ways to look at this, as I stated in The Startup Lawyer’s comments. […]

  5. @ Michael and Chris –

    I'm not ready to call this an all-out trend yet, but I'm starting to see more interest from individuals planning to launch new tech startups. None of the interest is coming from recently laid off people, either.

    Anybody else experiencing something similar?

  6. @ Michael and Chris –

    I'm not ready to call this an all-out trend yet, but I'm starting to see more interest from individuals planning to launch new tech startups. None of the interest is coming from recently laid off people, either.

    Anybody else experiencing something similar?

  7. if money can be made in good or bad times , especially by those who have the financial clout to invest , then what significant difference is there between startup companies now , and startup companys just a few years ago ? Does the interest rate alone determine how the country move econimcially or does the access to capital itself by your average joe blow moves the economy ?

  8. if money can be made in good or bad times , especially by those who have the financial clout to invest , then what significant difference is there between startup companies now , and startup companys just a few years ago ? Does the interest rate alone determine how the country move econimcially or does the access to capital itself by your average joe blow moves the economy ?

  9. Carl-

    I think your questions may only be fully-answered by an economic thesis, but here's my short take:

    From what I'm hearing and seeing, getting any type of commercial loan to launch a startup is next to impossible. Not that banks are great sources of startup capital, but at least it is/was an option for some entrepreneurs. It's true that money can be made in good or bad times, but at some point, a startup will need money. And money is now harder to get.

    At least for the US economy, the consumer seemed to be the driving force. Interest rates are obviously key, but there are so many variables to consider that we'd end up with an econometric model.

  10. Carl-

    I think your questions may only be fully-answered by an economic thesis, but here's my short take:

    From what I'm hearing and seeing, getting any type of commercial loan to launch a startup is next to impossible. Not that banks are great sources of startup capital, but at least it is/was an option for some entrepreneurs. It's true that money can be made in good or bad times, but at some point, a startup will need money. And money is now harder to get.

    At least for the US economy, the consumer seemed to be the driving force. Interest rates are obviously key, but there are so many variables to consider that we'd end up with an econometric model.

Leave a Reply

Your email address will not be published. Required fields are marked *