Why Now Is A Good Time To Start A Business?

Entrepreneur Wayne Jackson has survived his fair share of bad markets.

In 2001, just after the Internet bubble popped, he helped start network-security company Sourcefire. Despite the difficult economic climate, he managed to raise $56.5 million in funding and took the company public in 2007. Cisco later bought Sourcefire for $2.7 billion. In 2010 Jackson took over at Sonatype, another security company, which launched in 2008 just as the economy was collapsing. Today the company is doing just fine. It recently raised $30 million in a financing round led by Goldman Sachs.

“I argued then and I’d argue now, quality ideas are going to be appealing to investors regardless of the market climate,” says Jackson.

Those words should come as some comfort to entrepreneurs who are looking at the current economic landscape and feeling a little anxious. The stock market has been on a nauseating roller-coaster ride that has left many investors shaken.

And while a public offering is years away for anyone starting a business today, that uncertainty trickles down. In the fourth quarter of 2015, venture capital deals dropped from $38.7 billion to $27.2 billion, according to CB Insights. In the third quarter there were 24 unicorns (companies worth over $1 billion) born. In the fourth quarter, only 12 companies hit that milestone.

We may not be headed for a crash along the lines of 2001 or 2008, but most people agree that the market is slowing down.

“People have their hand on the pause button right now,” says Peter Barris, a managing general partner at venture capital firm NEA. “We’ve seen valuations come down fairly dramatically. Who knows where the bottom is?”

There’s no question that it’s easier to start a business during boom times, but there are also plenty of advantages to starting a business during a quieter phase of the cycle. Entrepreneurs just have to adjust their planning for the realities of today’s market.

“In a less robust time, there’s a premium on management and execution,” says Barris. “It’s more about fundamentals.”

One of the biggest challenges entrepreneurs (especially in the tech space) will face right now is raising early-phase funding. Alex DeNoble, the executive director at San Diego State University’s Lavin Entrepreneurship Center, says that deep-pocketed private equity capital is going to be the most skittish in this kind of environment.

“Early funding will have to be self-financed, friends- and family- or crowdsourced,” says DeNoble. “Then you’ll have to look for patient money.”

Most venture funds average 10 years. DeNoble recommends that if you are looking for VC money, you look for funds that are in the early phase, year one or two, so they will provide you with a longer runway toward an exit.