Wednesday, July 1, 2020 by John Sharp (Hatcher+) 835 Views
A few days ago, Y Combinator announced they are reducing per-company funding and activity because, as a spokesperson said to TechCrunch, "The future of the economy is unpredictable, and we feel it is prudent during these times to switch to a leaner model". Based on the data we have reviewed from the last crisis, we think this is the wrong move.
During the Great Recession, at a time of unprecedented negativity, unpredictability, and unemployment, entrepreneurs responded by creating an unprecedented amount of new brands, new business models, and new revenue streams. Roughly half of today's fastest-growing unicorns (see chart courtesy CB Insights above) were created during this period. Billions and billions of dollars in value were created for investors.
Here's just a few examples of the companies founded during that time: AirBnB, Asana, Beats, Beyond Meat, Cloudera, Cloudflare, Credit Karma, Dropbox, DuckDuckGo, Expensify, Github, Glassdoor, GoFundMe, Groupon, MongoDB, Nutanix, Playdom, Slack, Social Finance, Square, Twilio, Uber, Venmo, and WhatsApp. And in 2010, just as the recovery was getting started, WeWork, Magic Leap, Pinterest and Instagram launched.
Venture capital companies founded at the same time Sequoia was producing its "RIP Good Times" deck included Andreessen Horowitz and Google Ventures. Slush, one of my favorite events, was inaugurated. Right in the middle of the Great Recession, Netflix launched its home streaming service. And let's not forget the iPhone - that product helped Apple dial up record sales - right in the middle of the largest economic collapse in decades - and then Apple doubled down with the launch of the Macbook Air, which launched in January 2008. On the Android side of the ecosystem, let's not forget Google Play - which launched ten months later - in October of 2008.
Sure, there were a ton of businesses created during this time that later failed. But as MatterMark and CB Insights have noted, in terms of unicorns (and market value) created, very few periods in history can match the multiples enjoyed by investors during the ten year period following the Great Recession. Investing in venture at that time might have felt contrarian, but it turned out to be a very smart call.
We remain *huge* fans of Y Combinator. YC literally reinvented the accelerator model and their processes have been copied by thousands of accelerators and scale up teams worldwide, and outcomes have been improved across the board as a result. But they are going the wrong direction with this call - they should be *upping* their investment amounts and activity, not lowering them. As the data from 2007-2009 illustrates, the COVID-19 period could well prove to be one of the most fertile periods of innovation - and value creation - in human history. Investors should be buying in right now, not getting out.
COVID-19 is causing a huge amount of pain right now - possibly more so than was caused by the Global Financial Crisis. But what is potentially being missed is the rapid acceleration of change happening in online retail and other forms of e-commerce, and other associated industries such as payments and banking. The move from physical locations for entertainment to home-based streaming of everything from major events to first-run movies just got accelerated by years.
The sight of weeks of uninterrupted blue sky above North Asia's more industrialized cities will not be quickly forgotten - and will lead to faster adoption of ecologically-friendly, sustainable approaches to everything from packaging to energy production. And in healthcare, the need for re-invention of hundreds of different devices and therapies will drive decades of growth for the hundreds of research companies currently focused on solving those problems.
Change is coming - fast. Right now, thousands of entrepreneurs and their employees are responding to these massive, rapid changes in our environment by dreaming up new products and services to sell in our changing world, and ways to optimise old products and services. As investors, we need to be reacting as well - by coming up with scalable, most effective ways to find and fund these value-creation engines.
During the next decade, countless lives are going to be saved and improved by the innovations being developed right now - and tens of billions of dollars in value are going to be created.
We should not pull back - we should invest.
John is a Partner at Hatcher Plus, the leading data-driven venture capital investment firm. John has extensive commercial experience at the senior management level, having been the Chief Executive Officer of Authentium, Inc. the Managing Director, Asia, of WorldSpace, and CEO of Hatcher, the precursor company to Hatcher+. A tenacious and driven executive with longstanding board-level and C-suite level management experience within high-growth companies, John also brings a strong history of capital raising from an extensive network of investors globally. As Chairman and CEO of cybersecurity pioneer Authentium (acquired by CYREN in 2010), John co-authored three US patents and developed and sold cybersecurity solutions to some the largest organizations in the world, including the US Department of Commerce, NASA, AOL, British Telecom, Comcast, Cox Communications, Google, McAfee, Microsoft, Symantec, and Telstra. As CTO at Hatcher+, DocDoc, Heardable, and ThoughtRiver, John has designed and developed several highly-innovative technology platforms using cutting-edge approaches to data processing, user interface design, and workflow optimization. John is a frequent blogger and an in-demand speaker at venture events globally, and has extensive experience implementing ESG solutions as Chairman and/or board member of numerous start-ups, including director roles at trade finance provider ASYX and payment aggregator Mozido, and roles as Chairman of MENA-based financial services pioneer Telr, and the leading Cambridge-based legal services technology company, ThoughtRiver.
The Best Investor Deck Ever|
The Most Unrewarding, Misunderstood, Underrated Job on the Planet|
The First 100 Are Funded!|
Venture Capital Simplified - The Rule of 5X|
The AI-Powered, Highly-Automated, Global-Diversified, Exchange-Tradable VC|
|John Sharp (237)|
|Wissam Otaky (11)|
|Dan Hoogterp (4)|
|Manav Narang (3)|
|Stephen Fisher (1)|
|Y Combinator is Pulling Back. They Should be Ramping Up.|
|Can a Robot Write a Business Plan?|
|What's Your TQ?|
|My Five Years in Space|
|Triple Your Bottom Line|
|An Activist Signals MPT is Coming to VC|
|The Hatcher+ H2i Impact Initiative|
|VC Impact Investing: A Primer|
|Looking for the Inflection Point – Tracking COVID-19|
|Keep Calm and Carry On Investing|
|Using AI to Match Investors and Entrepreneurs|
|50 Surprising Facts We Learned From Our First 100 Investments|
|The First 100 Are Funded!|
|The Power of Venture|
|US Immigrants Are Vital To VC Returns|
|Hatcher+ v2.0 Release|
|The Golden (Selection) Ratio|
|The Time-Traveling VC|
|We Created a Venture ETN - Here's Why|
|The Crane's Neck - Using Data To Improve Startup Portfolio Construction|
|venture capital, GFC, 2008, unicorns, COVID-19, Y Combinator, Hatcher+|