Posted by: @spdlm | 16 Sep 11

Effect of EU Debt Crisis on Start-ups

I couldn’t resist writing this short note today as I watched the BBC news coverage on the list of possible outcomes if the highly educated bankers can not figure out how they got to this mess, what the exact current status is and what they are going to do about it. I personally think that events like this is going to make the start-up community thrive. This is why.

The intention was good, but...

Supply & Demand

We, helped by the exaggerated media coverage and focus on a few nodes on the timeline are led to believe that the reason for the difficulties we are facing are due to one single problem. A good example of this is that, in Japan, the Credit Crunch in 2007/8 is referred to as “Lehman Shock”, as if Lehman Brothers single-handedly brought down the global economy. By the time these large problem manifest themselves in such a visible and catastrophic way, there are more long term and fundamental reasons. As with any business, it is always, I mean always, a question of Supply and Demand. Bankers provided reckless products because there was a demand. No matter how much I detest manufactured low quality pop music, as long as there is a demand, people (including talented people) will continue manufacturing this. We see this phenomena in the start-up industry too. Accelerators continue to churn out “entrepreneurs”, because there is a demand for more entrepreneurs.

Rising Private Equity Amount

The signs are there aplenty to suggest that consumers are genuinely demanding innovation, unique and actually intelligent products. At least, I believe (hope) so. I will admit that not all entrepreneurs will go on to produce things that actually contributes to the progress of humanity but in a way, we need those too. The more competitive their operating environment is, the better their product becomes. Let’s not forget, also, that when the financial markets are in a turmoil, investors tend to pull back and keep their money close to them. That part is not particularly encouraging to start-ups requiring investment. If your profession is Investing, however, it becomes harder to find a good investment ideas. The good news is, they would eventually have to invest, mainly because that is their job.As pointed out by Pitchbook.com Quarterly Report, there was a phenomenal growth in Private Equity deals this year in US. In fact, since 2008, there has been an increase in invested amount every year and this year (Q1 & Q2), we have seen more amount invested in IT Private Equity deals than all of last year.

The Timing

I think that timing is perfect to be thinking about starting something up. It is not to say that it is easier, but demand for good products is higher and many investors are keen to be part of it. This is why, we at NeuralM are very optimistic about this industry and are very excited to hear about more crazy ideas.


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