Start-ups & Economic Cycles

I recently stumbled across a website called CyclePro Outlook. On this site, Steven Williams analyses various long term cycles using various chart tending packages. What really got me was the following chart of the US house prices (in Florida) over the last 60 years or so:

House price

 

Obviously, the crash of the US house market is a pretty big topic right now. However, what interests me in the context of this blog is the following. How should start-ups, particularly those that are not cash-flow positive react to the current situation? How do you actually react or position yourself in the case that the house market continues to drop further? Let’s assume for a second that the US continues to be in a recession or will have only marginal growth state for many quarters to come. So, what do you do?

Interesting question. A few weeks back, I read an article by Marc Andreessen, founder of Netscape (amongst other things). Well, his newest company, Ning, has recently raised an amount of money much larger than what they actually needed. Marc explains why in his blog post:

We have raised about $60 million net in a private Series D equity round”

“We raised the money to enable us to keep scaling given our accelerating growth […] and to make sure we have plenty of firepower to survive the oncoming nuclear winter. At current growth rates, we don’t need it to get to cash flow positive, but having lived through the last crunch, it’s good to be conservative with these things.”

When Marc Andreessen believes there is a ‘nucleare winter’ coming and prepares by raising extra cash, start-ups should notice. Better dress warmly. This could be a cold one.

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