Recession and Entrepreneurship

The world economy is either hit by recession or at least the fear of it. Most of the things go down with the slowing economy, clearly indicating a positive beta with the economy (I am a finance student, you see!). But we also find a negative beta between the economy and the events such as loss of jobs and participation in entrepreneurship contest (I don’t have data on people becoming entrepreneurs). People say recession is just the right time to work on your dream as you have little to lose, but have an opportunity to conquer the world. I don’t know how correct it is to go for something that you feel is a good idea, in times when the whole world is not even looking at something that they felt to be great ideas a few days back!

A few days back, a friend of mine was asked about what he would like to do in life ahead and he had proudly said ‘I would like to an entrepreneur some 7-8years down the line’.

So, the next question, why not now?

There are various platform created for budding entrepreneur to come up and show their talent in this period, when the economy is hit by recession. So, this sounded a valid question.

My friend being intelligent and a quick thinker answered it very well. He answered: ‘Sir, most of the asset classes, particularly equity have shattered down. This asset class – equity, therefore gives an opportunity to make good money if I stay invested for next 2-3years. Therefore given that I have some money I would rather invest my money into equity for next few years and when the economy is back on track, I would like to use the money made to start my venture.’

Is this guy crazy in doing opposite to what the world generally does?

May be, but he has a point.

Probability of his venture being successful is lower than the probability of good returns from the investment. Also, even if the venture is successful, there is no surety of good return, which could also be true for equity investment (wrong timing for the stock chosen for portfolio). But nonetheless this sounds like an interesting idea - to invest now and wait for the economy to stabilize and then start your own venture.

In any case you could say ‘recession led you to entrepreneurship!’