Has the tanking of the US housing market killed start-up activity?

First, a disclaimer: I've done exactly no research to bolster this thesis. This notion is based strictly on what my economics professor referred to as "pub bullshit". Having said that, we spend a lot of time with VCs, angel investors, investment bankers, and entrepreneurs, and we talk a lot about entrepreneurial behavior; it seems to us that US start-up activity has slowed dramatically. This is especially alarming given that historically, recessions cause entrepreneurialism to spike.

Our pet theory is that much of the tech start-up activity of the last decade, particularly in places like Boston and the Bay Area, was fueled by the enormous run-up in housing prices. We've met numerous entrepreneurs who funded their start-ups with home equity loans, or at least felt secure in ditching their jobs at SAP and Intel and Cisco knowing that if the poop ever really hit the fan, they could always sell the family homestead and do no worse than breaking even. Now that home prices have returned to earth (and then some, in some markets), this source of capital, or at least peace-of-mind, has evaporated. Like much of the US economy, we suspect that the start-up sector has been fueled to a significant degree by speculation, and that that needs to be unwound before activity picks up again. Which is too bad: now more than ever, America needs the vision, balls and brains that only entrepreneurs can bring to bear...

AS

Comments

[Rich Tanksley]

My experience has been that the housing market crash has helped fuel entrepreneurialism because once you've lost everything, you have nothing to lose by starting a company. For example, if you lost your job, are upside down in your mortgage and are trying to figure out how long your savings will last, you have nothing to lose and everything to gain by starting a company. When you're comfortable sitting on some cash and equity, you are afraid to risk losing it.