In every recession we have seen a big uptick in startups being created. If you look at the last big one in 2008 a number of notable startups got their start including Twilio. So I would imagine the same will happen if we dip into a big recession. We are starting to see some of that happen now. I read a report that in 2021 VCs invested in double the SaaS companies than they did in 2020. However, 2020 was a bad year for all VC funding, but it says something that the growth in VC backed SaaS companies grew so drastically while the market has struggled for the past two years.
Startup creation / funding is closely correlated with near-zero interest rates. When money is cheap, venture capital is more lucrative. This correlates closely with the early 2000s bubble, the 2008 crash that dropped interest rates and allowed for extreme amounts of venture capital, and the 2020-2021 surge in startup investment. Venture capital in theory becomes a far less lucrative choice in a high-inflation, rising interest rate market. While we’ve definitely seen a bit of a pullback in VC funding over the last 6 months, it remains to be seen whether that was another temporary dip like in Feb/March 2020 or a larger shift in the market.
Personally, I think the entire economy has shifted to focus on SaaS revenue growth above all else, and it will be impossible to “pull back” from venture capital because of that inertia, but in theory based on historical trends there should be a pull-back.
