We’ve had an amazing run for innovative startups in social networking, green tech and search over the past few years and that may come to an abrupt end if we slip into recession. In fact, Goldman Sachs just lowered its estimate for US economic growth to 1%-1 1/2% for the rest of 07 and the first half of 08. That means the chances of slipping into recession are rising pretty fast, despite the surprisingly large interest rate cut by the Federal Reserve this week.
Even if we don’t technically move into recession territory (which means two quarters of negative growth), a sharp slowdown may well hurt the valuations of lots of established new startups and dry up the angel investor flows to those in the borning stage.
For big innovative/tech companies with deep cash pockets, such as Microsoft, Google, Cisco and others, this could be a prime time to gobble up fresh ideas and talent for much less than what they would have paid just a few months ago. Microsoft has about $35 billion in cash on hand. Google has about $13 billion. Check out Henry Blodget at the Silicon Alley Insider for more analysis on the possible impact of recession on the innovation space.