David Weisburd here.

As investors, we are tasked with the challenge of imagining how the world will be 5-10 years from now in order to decide what to invest in today.

Similar to untrained public investors, untrained angel investors tend to buy and sell at the very worst time – buying when the market is at its peak and selling when the market is near its bottom.

This is due to a financial behavior called operant conditioning, or the positive feedback we get when stocks are going up, and the negative feedback we receive when stocks are going down.

Unfortunately, this is exactly the opposite strategy that we should be pursuing as angel investors. As Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful.”

The best way to counteract this self-defeating behavior is to 1) be aware of this dynamic and 2) educate ourselves on how private markets perform during different market conditions.

Today, we’ll take a look at why some of the most valuable companies in the world, including Microsoft, Uber, Airbnb, Netflix, Slack, WhatsApp, and more were founded during a recession.

Advantage #1: Better Access to Talent

In a typical market, if you ask any CEO what their biggest challenge is, they will almost certainly say it’s recruiting the brightest engineers. This is because every startup is competing against every other startup – not to mention behemoth tech companies like Facebook, Google, Amazon, etc. Raising capital in these conditions is easy by comparison.

The opposite is true during a recession. Venture capital becomes scarcer and talent becomes more readily available. Only founders and startups that take a longer-term perspective on their companies are able to recruit the very best talent from other startups. Their main targets are those that have had to cut engineers in order to accommodate their VCs and large tech companies that have had to freeze hiring in order to accommodate public shareholders.

Not only is talent more available during a recessionary period, but the talent that comes onboard is more focused and less likely to be poached by other companies. As anyone that has worked within a startup will attest, nothing is more destructive to a product than a high turnover of engineers.

Advantage #2: The Right Business DNA

Just like any organization (or family for that matter), startups also have their own unique “DNA” or code. Startups have their own internal cultures, values, and decision-making processes. Companies that are started during recessions are not only more resilient, but also more frugal by nature.

Startups started during recessions are also hyper-focused on building the right products that lead to greater enterprise value vs. nice-to-haves or things that are “cool.”

Once a company’s DNA has been established, it is almost impossible to change, as people tend to hire those that fit the culture and mindset of the existing workforce. As a result, this DNA becomes a great competitive advantage for startups founded during a recession.

Contrary to popular opinion, the best companies ($10 billion+) all have strong economic value propositions and are not just “cool apps” that some greater fool is willing to buy.

Advantage #3: Less Competition and Larger Moats

We all know of the moats that were dug around castles and fortresses to keep enemies from invading. Within the startup world, the term moat has been applied to mean a competitive advantage that makes it more difficult for another party to compete with your startup.

Network Effects:
When the value of a product or service increases according to the number of other people using it.

Economies of Scale:
a proportionate saving in costs gained by an increased level of production.
Moats can vary from network effects to economics of scale. Companies that are started during recessions are able to build moats around their business that make it difficult or nearly impossible to compete with them in the future. If you doubt the power of a moat, consider why Craigslist and eBay are currently worth billions of dollars despite having technology that (mostly) dates back several decades.

During a recession, while the majority of the world is panicked, the bravest startups can take advantage of the decreased competition. build a sustainable moat, and secure a competitive advantage that can endure for many decades.


Not only are there significant advantages to starting companies during a recession, but there are benefits to investors as well. During a recession, angel investors are able to take advantage of significantly depressed valuations. For example, Uber’s seed round was famously priced at a $3.86 million pre-money valuation, which is roughly three times lower than a comparable company would receive during regular market conditions.

Personally, I’m not a huge fan of timing my angel investments to fit certain market conditions. I believe angels and VCs should invest on a sustainable and regular basis in order to diversify.

That being said, it’s rational to invest more during a bear market as we see today and invest less during a bull market like the one that we saw prior to the COVID-19 pandemic.

That’s why I encourage you to keep making angel investments even when the markets are chaotic. Not only should you do so to make sure your portfolio is diversified… but also because it could be stacked with favorable deal terms that can kick back even better returns.

In other words… Keep going!

I’ll be back soon.

Very best,

David Weisburd