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Investing During A Recession

Want to strike fear in the heart of a startup founder? Throw around words like “increase Fed rates,” “slow the economy down,” and, the widowmaker, “recession.” It’s not just founders that are vulnerable, either – many investors can be skittish heading into a downturn. I’m not one of them. As a serial tech entrepreneur turned angel investor, experience has taught me to become comfortable with risk. It (like everything) is all about mindset. The market is going to fluctuate – it’s what the market does. Sometimes it’s volatile, but it’s a temporary state that – like any other state – presents both challenges and opportunities. You have to prepare for the challenges to weather them, but you also need to prepare for the opportunities, so you’re ready to act and leverage them when everybody else is cooling their heels and worrying. Here’s how to think about investing during a recession, so you don’t get left on the sidelines. 

5 tips for investing during a recession.

1. Don’t panic.

People are emotional. That’s just a fact. When it comes to investing, letting emotion drive the bus is a critical mistake. The doom and gloom in the headlines may be spooking investors and making founders panic about finding funding, but here’s something to consider: angel investors and VCs typically reserve cash for just such an occasion. We call this capital sitting on the sidelines “dry powder,” ready to ignite when the opportunity arises. According to Pitchbook, VC firms have a record amount of dry powder ready to deploy during a market downturn in 2023. This isn’t just in the US. One Finnish angel network (FiBAN) reported 90% of their angels are ready to invest and are actively seeking high-quality startups to invest in. 

Don’t freak out. Instead, be ready to make your move.

2. Find great founders.

Tech startup founders need angels and VCs. For the most part, they’re just too early and unproven to qualify for traditional sources of funding or attract investors. When times are good, there are more investors willing to jump in. During a downturn, pickings are slimmer, just when founders need investors more than ever. If you refer back to tip #1, you can see why this is a mutually beneficial opportunity. If the market does in fact enter a recession in 2023, I won’t be waiting it out. I’ll continue to find the next generation of game-changing tech founders and deploy capital to help them grow and scale. Founders who are passionate and dedicated enough to do whatever it takes to succeed during a challenging time like a recession have the kind of grit I’m looking for. 

On the other side, we’ll ride the wave back up together. 

3. Invest in what you know.

This is not the time to jump on the latest hot stock tip you hear on the golf course. To be honest, this advice is good all the time, not just during a recession, but it matters even more during one. People will panic and, unfortunately, unethical people and companies know that. You can get taken advantage of during a recession if you let your fear call the shots. I’ve made mistakes in the past, and I learned from my experiences the hard way. Now, I only invest in what I understand. My background in tech can be leveraged in a range of tech-related fields like healthcare, real estate, fintech, crypto, cannabusiness, and more. I stay laser-focused on these sectors and I never lose sleep over hot stocks or can’t-miss “opportunities” that I pass on. 

4. Take your time.

Do your f*ing homework. This is investing 101 and yet I cannot tell you how many times I see founders and investors make mistakes because they’re too anxious about missing an opportunity to do their due diligence. At MacDonald Ventures the most time-consuming and rigorous part of what we do is vetting startups. I pass on the vast majority of deals that come across my desk. Like 98%. 

During a recession, your funding is needed more than ever. Take your time. Be picky. No one has a gun to your head. If you don’t get emotional, you won’t make as many mistakes. Startups fail every day. Most of them don’t make it. Even with exhaustive due diligence, angel investing is risky. If you don’t do your homework, the losses hurt that much worse, because they could have been avoided.

5. Let your values lead.

You can make a lot of money angel investing. You can also lose a lot of money angel investing. One of the biggest reasons I do this is because I get the opportunity to invest in companies I believe in. I get to work with founders whose missions align with our values at MacDonald Ventures. I get to help bring the next generation of revolutionary tech to the market, where it can change the world, making it more equitable and innovative, and disrupting legacy industries in the process. Whether the market is in a downturn or not, it’s always better to invest in companies that share your values, that are led by passionate founding teams, and that are dedicated to what they do. 

Recessions are tough on businesses, but they can help you sort the winners from the losers. The economic challenge will expose cracks in unhealthy companies and founders, and reveal the innovative, gritty startups that are willing to fight through the long, arduous journey from startup to success. 

Don’t let the bad times get you down. 

The more life I live, the more I realize it’s all the same. Whether you’re investing in an early-stage tech startup or jumping out of a helicopter on skis, there are a lot of commonalities: you’re accepting a certain level of risk, you’re going to be faced with the unknown, you’re going to have wins and you’re going to have failures. You can’t plan for every eventuality, but you can and should be prepared to leverage opportunity every chance you get. 
Don’t let your emotions, particularly your fear, drive the bus. Take a beat, do your research, stick with what you know and love, and, most of all: enjoy the ride.