May 18, 2020 - Technology

The pandemic downturn might yield a new startup wave

Illustration of a mouse with the wire forming an upward trending market line. 

Illustration: Aïda Amer/Axios

The American economy is in a dark period right now, but some in Silicon Valley are optimistic it could spawn a generation of startups whose founders are finally getting the nudge they needed to make the leap.

Why it matters: It may sound counterintuitive to launch new businesses in the middle of an economic crash, but it's worked during past downturns, and Silicon Valley's founders and investors remain willing, so far, to keep rolling the dice.

The big picture: Y Combinator, the famed startup accelerator program, is seeing 15-20% more applicants for its summer program, admissions chief Dalton Caldwell tells Axios — a sign that some entrepreneurs want to forge ahead both with new ideas and with companies they’ve already been working on.

  • Y Combinator’s free and online Startup School is also seeing increased interest. “More than 600 founders have signed up for our course every week since March, and in recent weeks, we've seen that number spike to over 1000,” it said in a statement.
  • “In a week, we’ve had 500+ Future Founders join from companies like Stripe, Uber, Lyft, Robinhood, Airbnb & Opendoor,” Chapter One managing partner Jeff Morris Jr. tweeted about the list of aspiring entrepreneurs he’s put together.
  • Those entrepreneurs will find plenty of programs to help them, including other accelerators, investors creating ways for startups to pitch them online, and programs that help would-be founders year-round, like OnDeck.

What’s happening: Initiatives like Cleo Capital’s Chrysalis and Chapter One’s Future Founders list are hoping to help newly unemployed tech workers explore starting new companies, while accelerator programs are seeing an uptick in interest.

“For the first time in a decade, product people and engineers are open to looking at new jobs,” Cleo Capital managing partner Sarah Kunst tells Axios.

  • Layoffs have been swelling at startups, larger pre-IPO tech companies, and public firms like Uber and Lyft.
  • Some are choosing to take new jobs, but many likely have the financial resources to take a step back and consider another route.

How it works: Kunst’s program, dubbed Chrysalis, will select about 100 applicants from a pool of experienced tech professionals who are not currently employed and connect them online via Slack, the work chat app, in the hopes they find others interested in pursuing similar startup ideas.

  • “It’s more like a writer’s retreat… You’re there because of the community and accountability,” says Kunst of the program.

What's next: It's too early to know what these new companies look like, how will they function, and what will they build.

  • For one, not everyone will feel comfortable startup a company with a stranger they can’t meet in person right now.
  • And some categories require in-person work, like robotics or other physical products that can’t be developed online remotely the way software can.
  • Many of them will likely have geographically distributed teams from the start, or at least the teams will run their businesses via tools like chat and videoconferencing apps even if they all live in the same area.
  • Caldwell notes an uptick in startups in delivery, logistics, health care, e-commerce tools, and virtual alternatives to in-person industries.

Yes, but: Not all the startups signals are bullish. Notably, equity management company Carta recently laid off 16% of its staff in response to its lowered expectations about new startups being formed in the near future.

Flashback: Recessions have often triggered startup baby booms. After the dotcom bust in the early 2000s, a new wave of small companies emerged to build "Web 2.0." And many of today's industry leaders got started during the Great Recession of 2008-9.

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