Are economic downturns good or bad for the formation and quality of new startups?

Jeff Seibert · Nov 22, 2023

Down markets are good for the ecosystem because they concentrate talent density inside companies

In hot markets it's too easy to raise, so strong second engineers, PMs and designers peel off to start their own things, stretching talent density thin across the ecosystem; when capital is hard to raise, teams stay together and density builds

47:20 Downturns concentrate talent density inside existing companies

Steve Jurvetson · Aug 3, 2020

Venture capital moves in long-wave boom-and-bust oscillations because capital is committed over many years and feedback loops are very long, so funds only collectively acknowledge a downturn with a lag

Two-thirds of Dow Jones Industrial Average companies were founded during a recession or depression; scarce capital produces a healthier startup culture where you iterate with customers instead of chasing the next financing round

5:03 Scarce capital during downturns forces healthier customer iteration over chasing financings

Brendon Cassidy · Mar 8, 2024

Down markets produce a boom in quality pre-seed and seed startups because the risk gap between a big safe company and a startup narrows, pushing talented people into early stage

When risk is mitigated between a big company and a startup, super talented people flow into the early-stage world; this is how tech mitigates downturns

37:47 Downturns push talent into early stage

Mitchell Green · Mar 7, 2026 · hedged

Avoiding the Gen 1 AI companies and instead backing AI companies founded after a downturn could work out, much as the internet companies started around 2003-2006 outperformed Internet 1.0 companies

The pattern of the dot-com cycle — early-generation companies got wiped out while the post-crash cohort compounded

57:01 Post crash cohort outperforms the first generation

Jason Lemkin · Jan 13, 2023

The downturn will not produce a great wave of new startup founders, because most of today's tech workers took highly paid ordinary jobs and will just look for another job they can phone in

Startups used to require being insane or romantic to join; the boom sucked in thousands of SDRs, AEs and marketing managers for whom tech was simply the best risk-reward job in the economy, and those people aren't going to go start the next Figma

27:09 Downturn will not produce a new founder wave since most tech workers were ordinary employees not entrepreneurs