Should entrepreneurs worry about market turmoil?

Posted on August 15, 2011 by

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Hell YES they should because market behavior and an entrepreneurs ability to raise capital are highly correlated.  While a falling equities market doesn’t directly effect a startup or entrepreneur, unless they play the market, it does effect those around them.  When looking to raise money your friends and family are much less willing to invest in a risky startup when they see their investments shrinking in size and their future income (their job) could be in question.  Heck, you could have proven yourself and still your F & F will be hesitant.

Market turmoil will also effect a startups ability to raise outside capital.  A falling market means compressed valuations, which will spill over into the private investment world because potential exits are more difficult, the IPO market halts, and the exit valuations drop.

What is an entrepreneur to do?  Keep talking with your friends and family.  Keep them up to date with what you are doing and company milestones or advancements.  Knowledge is power and the more they know about your venture the more comfortable they might be to give you some of their hard earned money.

Their are some positive effects that come from market turmoil.  Hard commodities fall so input costs drop.  Rent can come down and an entrepreneur can take advantage of this.  Brilliant individuals may lose their jobs and a startup has the opportunity to hire great talent.

What are your thoughts on the subject?

~Hammer Time

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