Startups and Macro Risk



I find it difficult to think of another time with as much macro risk as the present at least since the financial crisis and likely much longer than that. There is a shooting war in Europe with no clear endgame. China might make a move on Taiwan at any moment. We have an ongoing pandemic that could still produce a dangerous variant. US democratic institutions appear incapable of mounting a coherent response to pretty much anything and are under attack from within.

The broader stock market has held up surprisingly well in light of this. Yet many public tech stocks have already pulled back substantially. Bluechip names like Cloudflare and Shopify are down 50% off their all time highs. This is a reflection both of anticipated higher interest rates and lower growth. Still I would not be surprised if we wound up with a much bigger and broader correction, if any of these macro risks are realized.

Is this something a startup founder/CEO should be paying attention to? In order to answer this question it is useful to look at the interaction between private and public markets.

Private market valuations tend to lag public market valuations. This is fantastic for venture investors when you invest in a sector where public market valuations are just starting to expand because you can still get into deals at reasonable prices. This is when the best venture returns are achieved. That’s why being early (but not too early) to a new sector is so (Read more...)