Do hard times make good vintages?

By David Frankel

The 2008-2009 Global Financial Crisis was a tough time to raise capital for a startup or a new VC firm. However, those dark days also gave us Uber, Airbnb and minted over 20% of the VCs on this year’s Forbes Midas List. I don’t think that’s pure coincidence.

Of course, with the benefit of hindsight, this success looks inevitable. The rise of mobile/SaaS at the end of the aughts and the ZIRP-era funding environment made it easier for entrepreneurs to start and scale startups. It turned out to be a golden era of entrepreneurship.

For those of us that were there during the GFC, we know that this success was *not at all* certain at the time. Like today, there was no shortage of interesting new technology & markets, but macroeconomic concerns and a sense of unease in geopolitics overshadowed them.

As someone who has worked through the Dot-Com boom/bust and the GFC, I believe that lean times create stronger startups. How? A lack of resources forces people to become resourceful or removes them from the market.

Limits force everyone to focus resources on activities that drive the most value. There’s no time for expensive boondoggles or distracting side hustles. Resource-light founders weed out waste and reward high ROI activities – there isn’t the luxury of another option.

Capital-efficient startups must focus on what’s working and what’s not, whether by choice (bootstrappers) or circumstance (victims of bad timing). Then they incorporate the lessons and *repeat that process as much and as rapidly as possible.*

I know this is unsatisfying advice. Most founders already work incredibly hard and are trying their best. Still, the core job of every entrepreneur is to discern the north star metric for their startup and to direct *all* efforts towards it.

Even perfect execution won’t save all startups. Unbearably high valuations will crush some. Others have seen their markets shrivel in a high-interest rate environment. Nonetheless, founders who allow their focus to be divided don’t stand a chance.

The startup equity market is in a dark place, but having seen this movie twice before, I believe the industry will recover, and the firms and startups that are founded in or survive 2023/2024 will headline the IPO classes of the early 2030s. I hope to see you there!