The stock market is crashing right now. It’s not pretty. Just yesterday, the tech-heavy Nasdaq dropped 4%. Its now staunchly in bear market territory.
But here’s the thing about tech bear markets: They tend to be a breeding ground for innovative new startups.
While that might be confusing, follow me here…
Think about a few of your greatest accomplishments in life. Maybe it’s something career-related. Maybe it’s a fitness accomplishment. Maybe it’s a personal achievement. Whatever it is, just think about those moments.
How did they happen? Specifically, how did they start?
I’ll wager that they began in moments 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’d that happen? Well, it all started with the emergence of the Covid-19 pandemic in March 2020, which by every definition was an absolute crisis.
But during that crisis, I was able to see that the financial markets were overreacting to the economic impacts. I was able to turn that crisis into an enormous opportunity where I was regularly picking stocks week after week that were soaring hundreds and even thousands of percentage points.
I’m sure you have a similar story. We all have a story like that.
There’s a reason for that.
The reason is that comfort cultivates complacency, and pressure propels progress. Basically, when things are going great and we’re happy with our current states, we don’t feel the need to change things. We’re happy with how things are, and we grow complacent.
But when things are not going great and we’re dissatisfied with our current states, we feel the need for change. The greater the dissatisfaction, the bigger the urgency to create a different dynamic.
This is just Psychology 101. It’s human nature.
So… let’s extrapolate this psychological phenomenon to the U.S. economy…
The U.S. economy is struggling right now, and things are likely going to get worse before they get better, mostly because the Fed is trying to thread the needle of successfully taming inflation via rate hikes without killing economic demand. That’s a tall order, and the Fed has actually never successfully threaded that needle. Every time the U.S. economy has found itself in a situation like today, it spills into a recession within the following two years.
That’s the bad news.
Here’s the good news.
The last time the U.S. economy spilled into a nasty recession – 2008 – we witnessed the emergence of a new wave of innovative startups that were founded to solve the world’s big problems back then. Those startups went on to change the world, and they scored their early investors truly enormous returns.
Crisis Breeds Breakthrough Innovation
Ever heard of Venmo? The digital payment app for person-to-person money transfers was started in 2009 because its founders were tired of paying huge fees to transfer money to banks that were financially irresponsible and which, quite frankly, didn’t deserve those fees. Venmo was bought out 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 applications in the world, and a core piece of PayPal’s $130 billion fintech empire.
How about Instagram? Or Uber?
Instagram launched in 2010 as a way for consumers to share pictures with one another and hopefully reinject some joy in people’s lives. Uber started in 2009 after its founders couldn’t find a taxi on a cold night in Paris, due partly to a lack of taxi drivers in the wake of the global economic crisis.
Each are multi-billion-dollar enterprises today, with hundreds of millions of users.
Or how about Groupon? The discounts aggregator platform was launched in the middle of 2008 at a time when consumers were desperate to get discounts on anything and everything. That business is now worth $600 million.
Pinterest launched in 2010 for similar reasons as Instagram. Slack started in 2009, mostly to give cash-strapped companies a cost-effective way to communicate with each other. Square also launched in 2009 to empower a new generation of small retailers to make their businesses succeed even in a tough economic period. Airbnb got started in 2008 as a way for people to earn income by dynamically monetizing their real estate.
Dropbox. Glassdoor. Fitbit. Smashburger. Twilio. Drybar. Asana. Beyond Meat. Zulily. Okta. WhatsApp. All of those companies got their start during the 2008 Financial Crisis. All solved problems that were pressing to the world at that point in time. All have since become tech giants.
The point here is very simple.
Economic and market downturns are scary. But they also present very compelling startup investment opportunities.
Today is no different.
Coming Soon: A New Wave of Innovative Startups
The public markets are throwing a fit right now. Between soaring inflation, a hawkish U.S. Federal Reserve, lockdowns in China, and a war in Europe, stocks are buckling under the pressure of multiple macroeconomic and geopolitical risks. A recession within the next two years is likely.
But that also means a new era of super-boosted technological innovation is likely within the next two years, too.
Amid that boom, investors are going to be presented with some amazing new investment opportunities, especially in the startup word.
We think now is a really exciting time to be a tech investor, and an especially exciting time to be a startup tech investor.
So don’t let the recent market volatility spook you too much. History says what comes next is a series of generational opportunities to invest in innovative new tech startups poised to help fix today’s problems – inflation, soaring oil prices, supply chain bottlenecks, national security, and so on – and change the world.
The future is bright. We just have to get through this interim volatility.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.