Bear Market - The Context S05E12

We are in a bear market and more and more countries in the world will very likely declare over the course of the next few weeks or months to be in an economic recession. What are the implications for investors and founders of startup projects?

When we think about investors, we think about them as a homogeneous group, but in reality there are many different types of investors, like angel investors or managers of venture capital firms, and each of them have slightly different incentives, perspectives, timeframes, expectations of returns on their capital. Basically, traditional equity investment in startups needs about six to eight years to earn a return, and that period of time is actually sufficient to bridge recessions that may last a year or two.

If we consider this information, then it is somewhat surprising when immediately at the first signals of a bear market, or the first signals of a recession, you immediately read that the investors are investing less money, or at worse terms than before. One of the reason for this is the financial of course, but there is also a psychological one: during the bull market there is a rush to take a position in an exciting project, and the maesters trample each other, so when things are slowing down then everything is more calm, then they can take their sweet time to decide.

From the point of view of startup founders, bear markets are very hard, either to start or to survive, depending on the phase their startup is at. It must immediately react by freezing hiring, dismissing people from their project, and laying down on their marketing activities. The uncertainty of the many variables that need to be under control is frustrating, if not even panic-inducing, but at the same time the opportunity to actually start a project and in a bear market is great since the project will be less pressured in making decisions.

The Crypto market itself is a variant of these behaviors in a more compressed timelines. For many, the expectation was that whether Bitcoin, Ethereum, or cryptos different from these two main ones would be counter cyclical to the public stock market. Those people were surprised by the decline in technology stocks on NASDAQ or on other stock exchanges, and the decline in cryptocurrency prices would be going somewhat in lockstep.

I am not a trader, I cannot predict what is the short term variation of stocks or cryptocurrencies. There are people who believe technical analysis helps them draw certain lines, and they believe that these lines indicate trends that will support their trading assumptions. Good luck to them, but what I believe is that the ingenuity of talented teams and the desire of investors to earn a return by backing themes that come up with innovative solutions over large numbers and sufficient amounts of time will reverse the current bear market, the current recessions, and we will come out in a few months in the case of the crypto market, or in a few years, in the case of the public markets, and the global macroeconomic conditions, hopefully stronger with increased productivity and innovative solutions all around.