Why is it that some of the most successful companies in the world were founded during recessions? There’s a lot of speculation around this phenomenon, and it’s likely due to a variety of factors. But one factor that has emerged is this: Recessions often breed innovation.
In a recent blog, we discussed why startup investing is worth your consideration. Here, we’ve highlighted 10 startups founded during recessions.
Without further ado, here’s a list of 10 innovative companies founded during a recession:
Looking to raise money to make rent, the founders of Airbnb rented out air mattresses in their apartment during a conference because all the hotels were booked. Airbnb officially launched in March 2008 and quickly became an industry disruptor.
In August 2008, Airbnb launched its bespoke payments platform, which in 2019 processed about $70 billion in guest and host transactions in over 40 currencies. Now, there are 6 million active listings worldwide in 220+ countries and regions, with over 1 billion guest arrivals since its inception. In addition, the mutual funds that invested in Airbnb in 2014, prior to the company’s IPO years later, saw returns of 100–200%.
Slack may very well be a tool you use daily to communicate with your coworkers. It is yet another company founded (yep, you guessed it) during a recession, and it generated significant returns for VC investors (between 50–260%). Slack’s founder was originally working on an online game when he realized there wasn’t a collaboration tool on the market that met game developers’ needs. Thus, the idea for Slack was born. Within the first 24 hours on the market, Slack reached 8,000 companies, and it quickly became the world’s fastest-growing enterprise software ever and the fastest company in history to achieve a billion-dollar valuation.
Today, nearly 80% of Fortune 100 companies rely on the platform for instant communication. Whether the tool is effective for productivity, we’ll save for another day. However, it certainly makes work less boring and brings remote workers together in a way that other office chat solutions had not.
Another industry disruptor, Uber was created in 2009 after its founders couldn’t get a ride on a cold winter evening in Paris. They thought, “What if you could request a ride from your phone?”
In March 2009, the founders created an app to do just that. Three years later, Uber launched internationally and could be used in the same place where its concept was born—Paris.
The company expanded in 2015 to include Uber Eats, a food delivery service that connects drivers to people who want to enjoy the best restaurants from the comfort of their own homes. Today, Uber is focused on achieving sustainability and committed to “becoming a fully electric, zero-emission platform by 2040, with 100% of rides taking place in zero-emission vehicles.”
Instagram launched toward the end of the Great Recession, in October 2010, and the photo-sharing app quickly became one of the most popular apps in the world. Raking in 25,000 users on the first day, Instagram grew out of its founder’s love of photography.
The owners of venture capital firm Andreessen Horowitz had early discussions with Instagram’s creator and invested $250,000 in the company, which turned into a $100 million return, though that number could have been much larger had they not favored Instagram’s direct competitor at the time, Picplz.
In 2012, Mark Zuckerberg made a record-setting $1 billion bid to acquire Instagram, ultimately becoming “one of the best tech acquisitions of all time, helping secure Facebook’s dominance in social media for years to come.”
Today the app has pivoted from a photo-based interface to one that prioritizes videos and entertainment to compete with apps like TikTok, which have the attention of Gen Z.
5. General Motors
The Panic of 1907 led to a recession, which was the first global crisis of the 20th century. It was on the heels of this recession that General Motors was founded. At the time, William Durant was a well-established horse-drawn carriage manufacturer and initially resisted the rising popularity of the automobile. In fact, the automobile industry was a mess during the early years of the 20th century, with many manufacturers going out of business before delivering completed vehicles after accepting down payments.
GM produced a wide variety of vehicles, unlike Ford, which made only one car and in its first two years acquired 30 companies. Fast forward to 2008, an emergency financial rescue plan was developed to prevent the collapse of the U.S.’s struggling auto industry, which would allow Chrysler, General Motors, and Ford to operate through March 2009.
However, as the financial struggles continued, GM filed for Chapter 11 bankruptcy in June 2009. In November 2010, General Motors returned to the stock market with “one of the largest IPOs in U.S. history,” and the following year repossessed its title as the largest automaker in the world. GM has evolved with the times. In 2022, GM sold 2.27 million vehicles in the U.S. GM is now pursuing a vision of zero crashes, zero congestion, and zero emissions, and they’re committed to electric vehicles for all.
6. Trader Joe’s
Shopping at Trader Joe’s is an experience. From seasonal treats to a high-quality but affordable wine selection, the popular grocery chain provides a unique shopping experience that attracts health-conscious shoppers and those in search of a good deal. In 1967, the first Trader Joe’s grocery store was introduced by Joe Coulombe (hence, the Joe in Trader Joe’s).
The store originated as a small chain of convenience stores called Pronto Market. Struggling to stay afloat, Coulombe encountered a farmer with a unique problem: He had an abundance of extra-large eggs but not enough to sell to large supermarkets. So Coulombe made a deal and sold the eggs for the same price as large eggs, even though they were 12% bigger.
The egg loophole became a core tenet of Trader Joe’s merchandising philosophy and has continued through the years to save customers money. Today Trader Joe’s is a grocery empire with 560 locations across the U.S. and has, along with a growing number of companies, chosen to remain private since its founding.
1975 was a year marked by stagflation, a combination of high unemployment, high inflation, and stagnant demand. Bill Gates and Paul Allen were childhood friends turned computer programmers who created software for a rudimentary version of the personal computer called the Altair 8800.
Together they launched Microsoft (short for microprocessors and software). At the time, personal computers weren’t readily accessible to the average consumer, and most Americans still used typewriters.
By the end of the 1980s, Microsoft had become the world’s largest personal computer software company based on sales. Unlike many companies pre-IPO, Microsoft only took a single investment, and not because they needed the money. Rather, they wanted to get an experienced venture capital company on their board to give them “adult advice.” Microsoft never used the money and remained private for 11 years, which is notable considering the prior median amount of time for a software company to go public was 7.4 years.
In the process, Microsoft completely revolutionized the technology industry and paved the way for everyday consumers to be able to sit down at their very own personal computers.
8. Block (Formerly Square)
In the beginning, Block’s main product was a little white box meant to be connected to a mobile device and used as a simple credit card reader. It replaced bulky registers and created ease of access for business owners and consumers.
Block got its start in 2009, in the midst of the fallout caused by the 2008 financial crisis, and its stock has grown 900% since its IPO. Jack Dorsey, the co-creator of Twitter and founder of Block, penned a tongue-in-cheek list of 140 reasons his new idea for an easy-to-use card reader would fail and distributed it to prospective investors.
Of course, he had counterarguments to all of these objections and won the respect of the market, including high-profile investors like Sir Richard Branson. Block has led the way in creating easy-to-use payment solutions, and if you go to your local coffee shop, you’ll likely experience that firsthand.
But Block has done far more than replace cash registers. The company is now creating holistic solutions for business owners who want to manage not only sales, but staff, inventory, budgets, and more. In fact, Square changed its name to Block in 2021 to reflect a desire to expand beyond its original credit card reader business into technologies such as blockchain.
Groupon, a digital coupon provider, connects consumers and businesses with each other and provides daily deals, coupons, and fun activities at a discount.
Groupon’s founder was completing a public policy degree at the University of Chicago when his schooling was interrupted by a $1 million investment offer to create The Point, a tool to improve the online fundraising process. He left school for this venture, however, it wasn’t long until The Point began to fail.
The founder’s business partner even tried buying the phrase “make weed legal” to boost Google traffic but to no avail. One aspect of the failing platform that worked, however, was group deals, and disheartened investors encouraged him to tap into that. So, he started blogging those deals and called it “Get your Groupon.com.”
Against the backdrop of one of the worst financial downturns in U.S. history, the idea took off and was ultimately turned into a website and app. Today, institutional investors own the majority of Groupon’s issued stock, and the digital coupon giant has saved people over $1.3 billion and currently has over 30 million subscribers in North America alone.
Venmo was started by two entrepreneurial friends who were randomly paired as roommates at the University of Pennsylvania in 2001. One fateful weekend, one left his wallet at home, leaving the other to cover him all weekend, ultimately squaring up with a check. They wondered “Why are we still doing this? We do everything else with our phones.” In this case, their inconvenience led to world-changing innovation, and Venmo was created.
In later iterations of the Venmo product, the founders added a social component by allowing users to see how their friends were spending their money. That turned out to be a very wise decision, and Venmo’s prevalence has been pervasive in the culture. “I’ll Venmo you,” is a phrase widely used today, and the app currently has more than 83 million active users. Venmo was purchased by PayPal in 2013 and quickly became one of the shining stars in PayPal’s portfolio, according to its CEO Dan Schulman, who says he’s okay if Millennials don’t know PayPal owns Venmo.
How to Invest in Startups the Tax-Advantaged Way
Since the Federal Reserve is expected to continue raising interest rates in 2023, many, including Yieldstreet founder Michael Weisz, are urging investors to consider alternative assets like private equity, private credit, and real estate in 2023.
While investing in alternatives was once reserved for the ultra-wealthy, the good news is that today, accredited and non-accredited investors alike have the opportunity to invest in startups. What’s more, they can do it the tax-advantaged way using their retirement dollars. With a self-directed traditional or Roth IRA from Alto, you too can invest in startups tax-deferred or tax-free.
Check out our list of investment partners to learn more about the ways you can invest in startups using your Alto IRA.
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