It’s one of the great conceits of Silicon Valley that the best companies are created in the darkest times.
Google, which is launching its own venture capital fund this morning, is the latest to pay lip service to the idea. This is from the blog post announcing the fund:
If anything, we think the current downturn is an ideal time to invest in nascent companies that have the chance to be the “next big thing”, and we’ll be working hard to find them.”
Google itself, of course, does not fit this picture. It is a baby of the boom times: set up in 1998, in the midst of the dotcom frenzy, and raising its first $25m in venture capital in mid-1999, which was close to the peak of the mother of all venture capital cycles.
Jim Breyer of Accel Partners, whose board positions include Facebook (founded in 2004 and with its first venture capital round in 2005, well into a consumer internet boom) puts it this way:
The truth with a truism is, there’s always a grain of truth – but the generalisation can be misleading. There have been many exceptional companies that have been formed in deep downturns – and Cisco is clearly one of the very best examples. At the same time some of the best and most vibrant companies were formed in the face of a boom, as was the case with Google. Generalising can be deeply dangerous.
The truth is, there is no evidence to back the claim that this is a good time to start a company. It may be the case that more bad companies are founded in good times, since there’s more cash around to back me-too start-ups, but that doesn’t mean the opposite is true.
Claims to the contrary sound more like entrepreneurs and venture capitalists whistling in the dark to keep their spirits up.
