Is this a Good Time to Startup a New Business?
"The IPO window was virtually shut in Q2 2022, and VC-backed public listings reached a 13-year quarterly low with eight completed," PitchBook notes in its latest VC report.
The IPO pipeline is closed for the time-being, startup valuations are half what they used to be, and many angel and VC investors are watching from the sidelines. All of which may lead you to ask, is now the right time to start a new business?
Today, macroeconomic factors like rising interest rates and oil prices, inflation, and the Ukraine war have brought us to this place of great uncertainty. Not to be outdone, microeconomic factors such as the dearth of skilled employees in key areas (e.g., AI coders, product management, enterprise sales personnel, etc.), supply chain issues, and increased competition has exacerbated these problems. As expected, many angel and VC investors are taking a seat on the sidelines.
My core belief is the public markets and discernible trends in private company investments shouldn’t be factors in new business creation in the technology sector. Vision, invention, breakthroughs, and the energy and ingenuity of entrepreneurs are what count in successful startup formation.
Many massively successful businesses were founded during the Great Depression and during the various economic catastrophes, large and small, ever since. Blue chip companies like 3M, Chevron, Disney, Exxon Mobil, FedEx, General Electric, Johnson & Johnson, Kraft, Merck, United Technologies and others started during the 1930’s, at the height of the Depression, or subsequently during challenging times. Tech giants like Adobe Systems, Amgen, Apple, Broadcom, Electronic Arts, Genentech, Genzyme, IBM, Lotus Software, Microsoft and others were also started in hard times.
Additionally, many VCs who have become industry leaders and household names since the early 1980s earned their stripes by embracing economic and financial uncertainty – often worse than the conditions we are experiencing today – and profited by investing in early-stage technology startups at discounted valuations.
In my case, I started Black Duck Software following the thermonuclear meltdown that occurred after the “Dot-Com” or “Internet Bubble” burst in 2000-2001. Many people thought I was crazy to fund a startup in the “enterprise and dev tools space” in December 2001, when I started Black Duck. A lot of VCs and even some fellow entrepreneurs thought I was out of mind to base the company’s revenue model on Software as a Service (SaaS) and a subscription-based licensing model. At the time they said SaaS was “a fad,” and that the proprietary license model provided better cash flow.
The peanut gallery said that helping enterprises harness the (then unproven) availability and power of Open Source Software (OSS) was a fool’s errand because it was not yet widely in use and its future role seemed limited. Some who heard the whole vision did not think I could transform the company into a security company.
During that dark economic period I pitched nearly three-dozen VCs in Boston, NYC, and Silicon Valley. They all passed on a Series A investment in Black Duck. (Someday I will write a blog post on the asinine comments made by some of those who passed. I remember them all.) It wasn’t until I found a former boss from Microsoft – Roger Heinen – who understood what I was trying to accomplish, and was eager to invest in me, my vision, and the version 1.0 code developed after 8 months of inspired work. The rest is Black Duck history – including its acquisition by Synopsys 17 years later. I achieved my goal of disrupting the software industry, and today Black Duck is a standard in interrogating source code, binaries, and providing malware insights into a code base.
Beware, my friends, though—the next generation Black Duck is about to come around the corner. Innovation never stops and the competition never sleeps.
I encourage entrepreneurs to start businesses irrespective of the state of the economy or financial markets. Take into consideration advice from angels and VCs, and your prof’s perspective. Consider suggestions from other startup CEOs. Ignore warnings from your parents – what do they know? In the end, fuck them all!! Go startup a business and disrupt an industry. Tough it out, enjoy the journey, and reap the rewards.