The stock market is crashing right now. It’s not pretty. Just yesterday, the tech-heavy Nasdaq fell 4%. It is now firmly in bearish territory.
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But here’s the problem with tech bear markets: They tend to be a breeding ground for new, innovative startups.
Although it may be confusing, follow me here…
Think about some of your biggest accomplishments in life. Maybe it’s something career related. Maybe it’s a fitness accomplishment. It may be a personal achievement. Either way, think about those times.
How did they arrive? Concretely, how did they start?
I bet they started in times of crisis.
For example, I think one of the greatest accomplishments of my life was being named the world’s number one stock picker at just 25 years old in 2020. How did that go? Well, it all started with the emergence of the Covid-19 pandemic in March 2020, which by all definitions was an absolute crisis.
But during this crisis, I could see that the financial markets were overreacting to the economic impacts. I was able to turn this crisis into a huge opportunity where I was consistently picking stocks week after week that were skyrocketing hundreds or even thousands of percentage points.
I’m sure you have a similar story. We all have a story like that.
There is a reason for this.
The reason is that comfort breeds complacency and pressure propels progress. Basically, when things are going well and we are happy with our current state, we don’t feel the need to change things. We are satisfied with the way things are, and we become complacent.
But when things are do not well and we are dissatisfied with our current states, we feel the need for change. The greater the dissatisfaction, the greater the urgency to create a different dynamic.
It’s just Psychology 101. It’s human nature.
So… let’s extrapolate this psychological phenomenon to the US economy…
The US economy is struggling right now, and things are likely to get worse before they get better, mainly because the Fed is trying to thread the needle to successfully tame inflation via rate hikes without kill economic demand. That’s a tall order, and the Fed has actually never been able to thread that needle. Each time the US economy has found itself in a situation like today, it has descended into a recession over the next two years.
That’s the bad news.
Here is the good news.
The last time the US economy tumbled into a bad recession – 2008 – we saw the emergence of a new wave of innovative startups that were founded to solve the big problems of the world at the time. These startups have gone on to change the world, and they’ve brought their early investors some truly massive returns.
Crisis breeds breakthrough innovation
Never heard of it Venmo? The digital payment app for person-to-person money transfers was launched in 2009 because its founders were tired of paying huge fees to transfer money to banks that were financially irresponsible and very frankly, did not deserve this expense. Venmo was acquired by Braintree for $26 million in 2012, and PayPal bought Braintree for $300 million in 2013.
Today, Venmo is one of the most widely used financial apps in the world and a central part of PayPal’s $130 billion fintech empire.
What would you say instagram? Or Uber?
Instagram was launched in 2010 to allow consumers to share photos with each other and hopefully inject joy back into people’s lives. Uber started in 2009 after its founders couldn’t find a taxi on a cold night in Paris, partly due to a lack of taxi drivers following the global economic crisis.
Each is now a multi-billion dollar company, with hundreds of millions of users.
Or how about let’s group? The discount aggregation platform was launched in mid-2008 at a time when consumers were desperate to get discounts on anything and everything. This company is now worth $600 million.
pinterest launched in 2010 for similar reasons to Instagram. Soft started in 2009, primarily to give cash-strapped businesses a cost-effective way to communicate with each other. Square also launched in 2009 to empower a new generation of small retailers to grow their businesses even in tough economic times. Airbnb started in 2008 as a way for people to earn income by dynamically monetizing their real estate.
drop box. Glass door. Fitbit. Smashburger. Twilio. dry bar. Asana. Beyond meat. Zulily. Okta. WhatsApp. All of these companies emerged during the financial crisis of 2008. All of them solved problems that were pressing the world at that time. All have since become tech giants.
The point here is very simple.
Economic and market downturns are frightening. But they also present very interesting investment opportunities for startups.
Today is no different.
Coming soon: a new wave of innovative startups
Public markets are in a crisis right now. Between soaring inflation, a hawkish US Federal Reserve, lockdowns in China and war in Europe, stocks are caving under pressure from multiple macroeconomic and geopolitical risks. A recession within the next two years is likely.
But it also means that a new era of super-boosted technological innovation is also likely in the next couple of years.
Amidst this boom, investors are going to be presented with incredible new investment opportunities, especially in the world of startups.
We think now is a really exciting time to be a tech investor, and a particularly exciting time to be a start technology investor.
So don’t let recent market volatility scare you too much. History says what comes next is a series of generational opportunities to invest in innovative new tech startups poised to help solve today’s problems – inflation, soaring oil prices, bottlenecks supply chain, national security, etc. – and to change the world.
The future is bright. We just have to overcome this intermediate volatility.
As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.
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