Economic Conditions

One of the hard realities of being in business is that companies exist in the context of the overall economy; their environment. And regardless of everything else, those conditions limit and/or enable the ability of the company to thrive.

Different conditions benefit and harm different companies. The classic example is a market collapse or massive inflation likely leading to recession or depression generally benefits companies like Campbels Soup, which offers less expensive pre-cooked foods that can be heated at home, stored for reasonable periods of time, and eaten cold if necessary. All you need is the ability to open the cans and you can eat.

On the other hand, during economic booms, especially with market bubbles forming, like the emergence of the Internet and the emergence of AI, lots of investors see the potential gains, open up their pocket books and spend while the opportunity is hot. Some will become wealthy and most will lose their investments, but the saying goes "Strike while the iron is hot".

Favorable

Today, as always, some things seem highly favorable while other things do not. Favorable today (in my opinion and without basis provided) include:

• AI, which seems certain to keep providing additional major gains as the technology unleashes new opportunities;
• Medical breakthroughs (devices and treatments in particular) which seems to be coming up with new and amazing things on a daily basis.
• Space is also beginning to expand as new companies introduce new technologies and interplanetary exploration begins with realistic time frames for permanent present on the Moon and possibly other nearby planets.
• Biological science is advancing at an astonishing pace with the recent emergence of human generated (pretty much from scratch) new viruses and even single celled living organisms.

The likely time frames for commercial value at large scale for space and biology seem a bit further away for these areas, and scientific advancement rarely turns into commercial success in short time frames.

Unfavorable

But the business environment seems highly unfavorable for early stage startups with no sales (yet) and seeking investment funds in general. And perhaps more importantly, the great uncertainty in the markets today make for unfavorable overall environmental factors. Here are some examples, again just my opinion, and again without adequate basis provided:

• Inflation seems highly likely to accelerate in the short to medium term, at least for the US and likely as a knock-on effect for other parts of the world.
• With inflation comes increased interest rates, although the record of the current US administration for seeking to keep interest rates low would seem to stand against it, private interest rates are currently on the order of 5% or more above the US prime rate, and as investors seek higher returns to compensate for the lost value of their capital.
• Seeking higher capital returns with lower uncertainty tends to drive investors toward more conservative approaches to assure wealth is maintained against inflation. Market bubbles may be short-term solutions, but things like digital currency threatened by quantum computing breakthroughs and investments in new marketing and sales technologies as an example of the AI utility in the short run are not likely to be desirable solutions for these investors.
• Small companies with little or no sales are likely to be seen as very high risk (uncertainty) and most will fail if historical statistics hold. I suspect hard times are coming to the bottom of the economy as they always seem to do during these times of great uncertainty.

Where does this leave you?

As usual it depends on your current situation, and as usual, my guess is likely as good as yours. However, here is what I think is likely:

• If you are a small startup seeking initial funds it seems likely to be harder and harder for you to get those funds over the next several years than it has been over the last several years, and that has not been all that easy to date. It is even worse for the areas that seem likely to go downhill.
• If you have some recurring revenue, perhaps $35K/mo or more, the chances are you will be able to sustain the revenue unless it is in an area that is collapsing or an area where your offering is considered less necessary and more optional to your customers.
• If you are growing in an area that is growing, even if it is likely a bubble at the top, it seems likely you will continue to grow if you manage your situation well. Funds are looking for good investments, and if you align with their view of the world and can show you are better than the alternatives, you are more likely to be able to get investment, continue to grow, and become highly successful.

This situation for investment in early stage companies today is complicated and it is hard to get investment without substantial recurring revenue. The economic situation today is dicey at best. It looks like inflation is going to hit hard, there is a global oil and energy problem associated with conflicts in the Middle East, there are high levels of tariffs being use4d as economic leverage, there are substantial global alliances that are shifting, people are worried about the deprecation of democracy and a general trend toward autocratic governments in much of the World, global climate change is hitting record high temperatures for oceans and land areas, and on and on.

In summary

There is a high likelihood that economic uncertainty will cause investors to pull back from high risk (uncertainty) investments, and that is reflected in the increased difficulty in getting investment for early stage companies.