Is recession a good time to launch a startup?

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The Weekend Pitch

August 14, 2022

Presented by Masterworks

(Joey Schaffer/PitchBook News)

In the midst of the last global recession in 2008, two entrepreneurs struggling to pay for their apartment had an idea to rent out air mattresses on their floor. Over the next 14 years, Airbnb co-founders Brian Chesky and Joe Gebbia, alongside Nathan Blecharczyk who joined later on, would grow their business to one of the largest companies in the US, with a market cap of over $70 billion.

Fast forward to today, and countries around the world are facing the possibility of another recession. And, just as Chesky, Blecharczyk and Gebbia were in 2008, another would-be entrepreneur could well be tinkering away in a workspace with the next great idea.

However, with rising inflation and interest rates, decreased consumer spending and layoffs at some of the biggest VC-backed companies across the globe, now hardly seems the time to take ideas and money to brave the storm.

How, then, to explain why many investors swear the “best” companies are created in recessions, a phrase that, in personal experience, has been repeated so often recently that it seems like a new VC mantra.

Welcome back to The Weekend Pitch. I'm Leah Hodgson, and you can reach me at leah.hodgson@pitchbook.com or on Twitter @LeahFHodgson.

Venture's renowned optimism means taking statements like this with a pinch of salt, even if those optimists have plenty of examples to back up the sentiment. After all, tech sector giants including Slack and Square were launched during the 2008 financial crisis, and looking even further back, household names including Microsoft and eBay were founded during times when the global economy was faltering.

Still, given how strongly VCs are seemingly clinging to the idea, I say it needs to be tested.

Quote/Unquote

"Credit is underrepresented in technology relative to other industries. [Blackstone will] focus on providing capital to best-in-class technology companies that are in a challenging capital environment right now."

—Viral Patel, global head of technology investing for Blackstone's $230 billion credit arm, said in an interview with The Information about Blackstone's plans to push into lending for tech startups. The firm expects to invest at least $2 billion into technology debt deals.

Deal flow

Venture capital deal activity in European pet tech has dropped after a surge in investment fueled by the pandemic.

So far this year, €64.4 billion (about $66.1 billion) has been invested in European pet tech startups across 20 deals, according to PitchBook data. Deal count is pacing slightly behind last year's record, but the amount of capital spent has fallen significantly in 2022, currently standing at just over a quarter of the total amount raised in 2021.

Did you know ...

(PopTika/Shutterstock)

… Fintech startups collected $53.5 billion in VC funding in the first half of the year, currently behind 2021's pace but already surpassing 2020 totals, according to PitchBook data.

While some areas of fintech—such as neobanks and real estate lending platforms—are maturing and attracting more late-stage capital, other areas—such as decentralized finance and autonomous finance—have just begun raising early-stage institutional capital, according to PitchBook's Q2 2022 Fintech Report.

Learn more in our latest roundup of top fintech investors.

Datapoints

Seed deal counts have remained elevated, and median deal sizes and valuations continue to grow. The median pre-money valuation for seed in 2022 has reached $12.0 million, 33.3% above 2021's full-year figure of $9 million. The median seed valuation generated in Q2 was $12.2 million. Read more in our latest VC Valuations Report.

Recommended reads

All eyes are on Todd Boehly as Chelsea FC plays its first home game since its sale. Some see him as a savvy dealmaker, while others see an overly confident financier. [Bloomberg]

The sanctioning of prominent cryptocurrency platform Tornado Cash exposed technical gaps in the government's ability to prevent money laundering in the crypto space. [The Wall Street Journal]

Internet Captchas are fast becoming unusable, rendering the internet a wasteland of difficult puzzles that users must decipher to do the most basic things. [Wired]

One writer's thoughts on how consumers claim to be willing to pay for sustainable products and practices yet don't often follow through. [Harvard Business Review]

The climate and tech bills recently passed in Congress expand the role of the federal government in private markets. [The Wall Street Journal]

Snippets, which sometimes show up as a featured response to direct questions asked of Google Search, have been a cornerstone of the company's AI strategy. Now, the feature will stop giving answers to silly questions as Google seeks to optimize the service. [The Guardian]

This edition of The Weekend Pitch was written by Leah Hodgson and Ryan Prete. It was edited by Chris Noble and Clarinda Simpson.

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Is recession a good time to launch a startup?

Quote/Unquote

Deal flow

Did you know ...

Datapoints

Recommended reads

Older messages

VC valuations amid uncertainty

Revisiting 2022 predictions for Europe

VCs ride the brakes in mobility tech

Ups, downs of US VC valuations

SoftBank warns of Vision Fund cuts

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