It LinkedIn take du jour: 2022 is certainly one of optimism.
Economic downturns will usher in the next big tech breakthroughs, as crisis, optimists say, creates opportunity.
In the short history of technology, we’ve seen how this sentiment can ring true. The Great Recession of 2007-09 spawned billion dollar companies like Airbnb (founded 2008) and Slack (founded 2009).
Will 2023 and 2024 be the future breakout years for Brian Chesky and Stuart Butterfields? Is Now Another “Airbnb Moment”?
Hard times make for more resilient founders
Many proponents of the Airbnb theory point out that tough economic times lead to hardships, making them more resilient.
Katya Netsheim founded her first company, a business consultancy called Mediate, during the Great Recession, and her second, an e-learning company for teams called Kulcha, at the start of Covid, and while she takes her time (both times), she can not accept was on the spot, the circumstances he found himself in certainly made him stronger.
“A great company and a great founder grow under any conditions”
“You need resourcefulness, courage, and energy and conviction to go against the grain,” he says, explaining that he left his stable job as an M&A and digital transformation consultant at Axel Springer to start his first company. “These are all things that make a better founder.”
Being in a crisis certainly makes you more cash efficient, nimble and able to figure out what customers need, adds Nettesheim. and customers) to pay for it.”
“A great company and a great founder grow in any conditions,” he says Tomasz Swieboda, an investor who worked at Penta Investments, a central European fund in 2010.
Three years ago, at the very beginning of the recession, Penta acquired Żabka, a chain of Polish grocery stores that continues to be a leading retail player in the country. It increased EBITDA (earnings before interest, taxes, depreciation and amortization) by 162% and opened almost 400 new stores, “all during the global crisis.”
Fresh talent on the market
From a hiring perspective, now may be the best time to build a global tech giant.
Mass layoffs mean there’s plenty of experienced tech talent flooding the market, which is good news for incumbents. companies that previously struggled to hire experienced professionals, says Claude Ritter, co-founder of Cavalry VC.
Big layoffs have also lowered candidate salary expectations, meaning even early-stage startups are better off compete with big tech for top talent.
Serial founder and angel investor Dmitry Samoilovski recently founded Uniborn, a venture platform in Tallinn. which created a match tool to connect laid-off employees with business angels and VCs, based on his belief that mass layoffs at major tech companies will fuel a surge in startup operators in the coming years.
“Many have seen unicorns being built from the inside, so they have a different perspective and insider knowledge of what to do (and not do) when founding their startup,” he says. Samoilovskikh.
He adds that these operators have been sitting with their ideas for some time and have already “thought through all aspects of their business model” and worked out potential problems..
M:acroeconomic factors make it difficult to build now
However, there are many reasons why the next Airbnb will now be harder to create. Many investors say it’s actually harder to scale a successful company now than it was in the first decade of this century because of changing macroeconomic factors.
““Back in 2007, we were dealing with a recession, even if it was the biggest since the 1930s,” he says. Swieboda. “Now we face additional factors related to the Covid epidemic and geopolitical issues, such as Russia’s aggression against Ukraine. The founders should consider more factors,” he says.
“TFives are completely unlucky in the sense that we can predict what’s going on.”
Those factors include thinking about whether the company will face supply constraints over the next few years if China decides to annex Taiwan, said Cavalry VC co-founder Claude Ritter; says. Ritter founded German food delivery giant Delivery Hero in 2011, when the world had not yet recovered from the effects of the recession.
He adds that “theFives are completely unlucky in the sense that we can predict what happens,” and it is difficult to predict which companies will thrive or fail.
A year ago, Cavalry’s portfolio company Nory, an operating system for the hospitality industry, had no trouble raising money, but trying to raise a Series A round this year has been difficult, Ritter said.
Conversely, Patronus, another Cavalry portfolio that creates smartwatches to enable elderly patients to receive emergency care, this year set out to raise a €12m Series A and raised €27 million instead.
Interest rates are higher now
A second argument for making it harder for mega-hits like Slack or Airbnb concerns how interest rates affect the availability of capital for fast-growing tech companies.
At least part of Airbnb’s success can be attributed to the recession very low interest rates in the U.S. at the time, says Cavalry’s Ritter. Central banks around the world then cut interest rates in an effort to boost economic growth and investment.
“The rate drop was a huge consequence for (Airbnb) because they were able to raise a ton of money at ever-increasing valuations for a very complex business model that was very expensive to build,” he explains.
The environment is completely different than now, where interest rates have risen significantly; Interest rates in the UK are the highest they have been. 14 years. This was bad news for founders looking to fundraise. Rising interest rates have dragged down stocks, hitting public tech companies and making VCs more cautious about investing.
High interest rates also affect demand. consumers are encouraged to save more and spend less, especially on goods that are more enjoyable than the staple, which reduces the demand for newly created consumer goods.
“Just look at the Gorillas. Nobody pays you for models like that today, and Airbnb is like that.”
“I don’t think you can start an Airbnb today because nobody’s going to give you money to build that thing for two or three years,” Ritter adds. “Just look at the Gorillas. Nobody pays you for models like that today, and Airbnb is like that.”
And if VCs are more focused on supporting companies that can achieve profitability, rather than those that just want to grow as fast as possible, some truly visionary ideas that often take several years to find the exact business model, can pass.
A romantic tale
While investors may be well-meaning in telling budding entrepreneurs that now is the best time to start a company and theirs could be the next Airbnb, putting a romantic lens on the crisis isn’t helpful, Ritter says.
It leaves would-be founders unaware of the challenges of construction, especially given that fundraising is realistically very difficult.
Ritter predicts that many “tourist founders”—those who want to play entrepreneur without having a substantial business model—will be fired in the coming year because they won’t be able to raise money. Meanwhile, those working on “relevant and impactful technologies” in health or climate will thrive.
Nettesheim agrees. “The crisis is the end of the founder-as-lifestyle phenomenon. Who can brag about how much they saved this week? And how many people were fired?
“It’s hard to get established in times of crisis. It’s nothing for the weak, nothing for those in it for money or status.”
Is the next big tech breakthrough out there?
With all this, important innovations have already emerged this year amid a tough funding environment; GPT-3, a technology that uses deep learning to create human-like text, and the National Ignition Facility’s announcement of the first nuclear fusion reaction, according to Uniborn. Samoilovskikh.
“These two advances alone can spawn hundreds of new tech startups, and the potential for the ‘next big thing’ can easily be found in any one of them,” he says.
Perhaps this shows that new ideas and great companies can be built at any time. When founders feel compelled to start a business, they will, regardless of the situation. Neither Ritter nor Nettersheim had the economic environment in mind when they started their companies, they tell Sifted.
So, is the next founder of Airbnb or Slack already among us? And will we see life-changing companies emerge in the coming years?
“Absolutely,” he says Samoilovskikh. “Technology is developing at an exponential rate, so there will never be a shortage of ideas. In fact, now is the ideal time to see the next big tech company take root.”
Miriam Partington is Sifted’s DACH Correspondent. He also covers the future of work, co-authors Sifted’s Startup Life newsletter and from tweets @mparts_
