Will the recession hit Seattle Startups

Most likely the banking industry implosion that we are watching this week will not hit tech startups as badly as the dot com bust did in 2000/2001. The sharp movements in the market in the day to day ups and downs might remind people of what was happening with the markets behavior in 1999/2000, but are we better protected as a startup this time around.

Mainly, the real question is what is happening in the banking industry, what are the exposures that VC and Angel funds have to the same thing. Money is not just sitting in some low end checking account earning 1% interest, no they are most likely going to be wrapped up not just in startups and other businesses, but in other accounts that make a bit more than the default 1%. For right now funding is not an issue, but can it become one?

“I don’t think people here are feeling what the folks are feeling elsewhere in the country,” says Weissleder. “Locally, we have a resilient economy. There are a million and one entrepreneurs, and I haven’t heard from [one] who has had a hard time securing capital. Zivity, a user-generated porn site, just secured $7 million. I would venture to say that a company that’s posting nudies on the internet doesn’t need $7 million to do that. I’m not sure if it’s dumb money, or if it’s a sign that people are still investing, but I’m seeing a lot of young companies get funding.” Source: Wired

If we are as insulated in Seattle (which I think we are given the community, the number of startups, and the number of VC/Angel funds in town) as they are in Silicon Valley, it might be a while until any kind of recession hits the area.

The question is not one so much of money, but the idea that companies can be started for so little money, that anyone who is really interested in starting a company can do it for as little as 12,000 dollars based on recent Seattle events (startup weekends). Even in a recession people will be able to find 12K to get their idea off the ground. Growth will not be quick, but the developer or inventor of the company will still be able to grow their company.

Advertising will also not go away, prices will come down, but startups will still be able to make some money off of advertising. The idea behind that is that the internet has become such a ubiquitous service that people cannot imagine or afford to be off the internet. Most business, resumes, e-mail, and other ways of staying connected are all internet driven. The growth of internet social sharing around jobs, open positions, and others will enjoy a booming market in a recession. Colleges and Universities that teach on line will also see a boom in business as people retool, and some people become teachers to supplement income while a recession is going on.

In all, with so many positive scenarios, if the VC’s and Angels blow out because of the banking collapse, and jobs become scarce, there will be a boom in people starting their own companies, and bootstrapping themselves into their own business. When economic recovery happens 18 to 24 months down the road, they will have people who have been in college retooling to choose from. It is possible, and it is reasonable to think that if everything goes down the tubes, that there are still reasonable expectations for startups to bootstrap themselves, and deliver good quality applications, and make some money along the way. Even without the VC or Angel being able to give them money to grow larger quicker.