Why It Pays to Start Companies in Recessions - Kanebridge News
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Why It Pays to Start Companies in Recessions

A study suggests that when jobs are hard to come by, the best workers are more available—and stay longer

By LISA WARD
Mon, May 6, 2024 3:42pmGrey Clock 2 min

Could a recession be the best time to launch a tech startup?

A recent study suggests that is the case. The authors found that tech startups that began operations during the 2007-09 recession—and received their first patent in that time—tended to last longer than tech startups founded a few years before or after. And those recession-era companies also tended to be more innovative than the rest.

“The effect of macroeconomic trends is not always intuitive,” says Daniel Bias , an assistant professor of finance at Vanderbilt University’s Owen Graduate School of Management, who co-wrote the paper with Alexander Ljungqvist, Stefan Persson Family Chair in Entrepreneurial Finance at the Stockholm School of Economics.

Drawing on data from the U.S. Patent and Trademark Office, the authors examined a sample of 6,946 tech startups that launched and received their first patent approval between 2002 and 2012.

One group—about 5,734 companies—launched and got their patent outside of the 2007-09 recession. Of those, about 70% made it to their seventh year. But the startups that launched and got their first patent during the recession—about 1,212 companies—were 12% more likely to be in business in their seventh year.

These recession-era firms were also more likely to file a novel and influential patent after their first one. (That is, a patent the researchers determined was dissimilar to patents in the same niche that came before it, but similar to ones that came after it.)

So, why did these recession-era firms outperform their peers? Labor markets played a big role.

A widespread lack of available jobs meant that the startups were able to land more productive and innovative employees, especially in their research and development groups, and then hold on to them. More important, the tight labor markets also meant that the founding inventors—the people named on the very first patent—were more likely to stick around rather than try for opportunities elsewhere.

For startups started during the 2007-09 recession, founding inventors were 25 percentage points less likely to leave their company within the first three years. On average, about 43% of founding inventors in the entire sample left their startup within the first three years.

“Our study really highlights the importance of labor retention for young innovative startups. Retaining founding inventors cannot only help them survive, but also thrive,” Bias says.



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Tech investor was one of the most outspoken supporters of Trump in Silicon Valley

By Preetika Rana
Fri, Dec 6, 2024 2 min

President-elect Donald Trump named a Silicon Valley investor close to Elon Musk as the White House’s artificial intelligence and cryptocurrency policy chief, signaling the growing influence of tech leaders and loyalists in the new administration .

David Sacks , a former PayPal executive, will serve as the “White House A.I. & Crypto Czar,” Trump said on his social-media platform Truth Social.

“In this important role, David will guide policy for the Administration in Artificial Intelligence and Cryptocurrency, two areas critical to the future of American competitiveness,” he posted.

Musk and Vice President-elect JD Vance chimed in with congratulatory messages on X.

Sacks was one of the first vocal supporters of Trump in Silicon Valley, a region that typically leans Democratic. He hosted a fundraiser for Trump in San Francisco in June that raised more than $12 million for Trump’s campaign. Sacks often used his “All-In” podcast to broadcast his support for the Republican’s cause.

The fundraiser drew several cryptocurrency executives and tech investors. Some attendees were concerned that America could lose its competitiveness in emerging areas such as artificial intelligence because of overregulation.

Many tech leaders had hoped the next president would have a friendlier stance on cryptocurrencies, which had come under scrutiny during the Biden administration.

“What the crypto industry has been asking for more than anything else is a clear legal framework to operate under. If Trump wins, the industry will get this, and more innovation will happen in the U.S.,” Sacks posted on X in July.

The tech industry has also pressed for friendlier federal policies around AI and successfully lobbied to quash a California AI bill industry leaders said would kill innovation.

Sacks’ venture-capital firm, Craft Ventures, has invested in crypto and AI startups. Sacks himself has led investment rounds in many. He has previously invested in companies such as Slack, SpaceX, Uber and Facebook.

Sacks was the former chief operating officer of PayPal, whose founders included Musk and Peter Thiel . The group, called the “PayPal mafia,” has been front and center this election because of its financial muscle and influence in drumming up support for Trump.