How Startups Should React To The Election

Nov 9, 2016

These are suggestions for reactions to general trends based on my personal experience and should not be taken as actionable financial advice but rather as the opinion of a private business owner who has been dealing with these very issues.With such a drastic change to our country’s leadership, the world is watching the United States to see how we will react. Whether our unity and strength as a nation will falter, or whether the economic impact of such a leadership change will swallow us and our global strength as an economy.

For better or worse, how you run your business based on the fluctuating economic climate will escape traditional entrepreneurial teaching. Let’s start with the basics of how the economy is likely to be affected by the election, and how to guide your thought process through these changes.

Economic Effect of the Election

Paul Krugman, NY Times columnist and economist, is writing that we will be facing a tremendous economic fallout from this election. He cites the instability that Donald Trump has shown in his campaign will carry into his governance style, and this will create doubt among investors. It is Krugman’s belief that this will cause a global recession for the foreseeable future.

As Mr. Trump’s lead grew last night, we saw the DOW drop nearly 800 points. This reflects a lack of confidence in the American economy, and it shows that Krugman could be onto something. But this could also be attributed to fears in Mr. Trump’s governing style that could later go away.

The US economy has been growing consistently the past few years (bar a correction in Q1-Q2 of this year), and the Fed has been nearing an interest rate increase for a while now (a sign of a healthy economy). Many have speculated this rate increase to occur in December, but it’s likely this won’t occur until we find stability.

At this point, if you were to use Brexit as a comparison event, you would anticipate the economy to turn around in the next few months to a year and return to growth mode. Many of my personal friends in the finance world are embracing this correction and volatility as an opportunity moment to make investments.

This is great to know if you’re trading stocks, but what if you own a private company? If high growth is your intention, there’s really a few things to think about:

Startups In Market Volatility

Valuations will be lower if you don’t have cash flow. Investors are looking for companies that provide stability because the bond market has become saturated in anticipation of the election. The money they would put in bonds can go into businesses, but they have to appear very low risk or revenue centric/cash flowing entities. This makes it extremely hard to raise funding for a company that is based on user growth.Lending is easier to find than equity investments. If you need a loan, and you have collateral, this is exactly the type of low risk investment many angel investors and family offices are looking for nowadays. Again, this is due to market volatility and the investor’s desire to reduce risk in their portfolios.Family offices and private equity firms are moving acquisition activity to “roach” companies. Companies that are rarely affected by market trends and can generate profits even during recession.Know your industry and how it’s affected by the election. If you’re in healthcare, physician buying patterns will be altered if they believe an Obamacare repeal is in the future.If you do business internationally, make sure you are cognizant of the currency of your pricing. Are your prices in dollars, or the other country’s currency? This matters. Ask the UK.Read Bloomberg and The Economist. Know how things are changing, and what industries are hot. Read VC reports each quarter to see where capital is being allocated. Know which cities to raise capital from and when.

There is no formula or process to be able to handle differing economic conditions, but as a business owner, it is your responsibility to know and understand as much as possible about the economy so that your decision making and strategy factors internal milestones as well as anticipated market conditions.