Market corrections have been inversely correlated to innovation historically. The chart below graphs the Kauffman Startup Activity Index against the S&P 500 Total Return and overlays notable Series A financings. With the exception of 2003, when the global technology markets collapsed, innovation has moved opposite the public markets, most notably around 2008-2010, when the financial crisis spurred the creation of $10+ billions in enterprise value. This data tells a good story.
However, one thing to note is this is only based on the latest downturn in economic activities. Another thing is that even if we were to extract data back to the 80’s/90’s, the data will be weak due to the small overall private equity market. But regardless, this story paints a very interesting story going forward. We are now seeing a lot of startups that offers similar services but just in different industries. The most common phrase is “Uber of ____”. However, the current market is saturated with way too many similar product/service offerings so that’s why a lot of write-downs of M&A for publicly traded companies, down-rounds for private startups, drastic headcount cuts are common this year in 2016. With the next plateaued/weakened economic growth, it would be interesting to see what the next phase of “innovation” will bring.
Intersection notepad 