Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Valuations crashed in summer 2020. Portfolio companies at Hustle Fund saw founders requesting valuations that took a real dive compared to the prior year. These weren't worse companies. The market just dropped out from under them.

Most VCs responded by hitting pause. Sand Hill Road basically went silent. But here's what actually happened at Hustle Fund: we did 12 new deals per month during that summer. When other investors stopped investing, we accelerated.

"Markets come and go and every market is a double edged sword," Elizabeth Yin explained in a recent interview. "When it's easier to raise money, it also means it's more competitive to deploy money."

That's the thing about downturns nobody talks about. Yes, fundraising gets harder for founders. But competition for deals evaporates. Companies that would've been overpriced in frothy markets suddenly become reasonable.

Why downturns create asymmetric opportunities

The data tells an interesting story. In 2020, the median valuation founders requested when applying to Hustle Fund plummeted during COVID. But by 2021, valuations bifurcated wildly. Hot deals got really hot. Deals that weren't hot traded at lower valuations than the year before.

This happened because investors who sat out 2020 started catching up. They were playing catch-up, which drove up prices for sought-after companies. Companies that weren't in that "hot" category faced a much harder fundraising environment.

If you invested during the actual downturn, you got access to solid companies at reasonable valuations before the catch-up began. Patient capital wins.

Elizabeth noted something crucial: "What I have noticed is that up and down markets happen every decade. Every founder has an up part and a down part of their journey that they have to navigate. The founders who are frugal, scrappy, and focused on putting resources on one thing tend to do very well."

The best founders to back in a downturn aren't the ones with unlimited runway who can coast. They're the scrappy operators who know how to do more with less.

What to look for when markets tank

Terms matter way more in downturns. If you invested in a company at a $100M post-money valuation, you're not making much money even if they sell for $1B. Experienced investors who've survived downturns know that deal terms determine whether something is actually a great opportunity.

Focus on three things: edge and fast execution, big opportunity with smart go-to-market, and strong multiple potential. Does this founder have deep domain knowledge or connections that create an unfair advantage? Can they start small to stay under the radar, then wedge into something massive later? At what valuation are you getting in, and what's the realistic exit scenario?

During downturns, you also see which founders have staying power. Companies that survive tough markets often become the strongest players. They learn to operate efficiently. They build real businesses instead of burning through cash.

Practical strategies for downturn investing

Don't try to time the bottom. At Hustle Fund, we're valuation sensitive in any market, but we take a long-term view. If you see a great company at a reasonable valuation, do the deal.

Expect everything to take longer. During COVID, work became more chaotic. Portfolio company needs increased dramatically. Fundraises slowed down. If you're actively investing during a downturn, understand that you'll be stretched thin.

Many VCs in 2020 simply couldn't adapt their workflow to Zoom. They were used to in-person meetings and couldn't adjust. That created opportunity for remote-first investors.

Build your portfolio knowing some will fail. Downturns are unforgiving. Even good companies run out of runway. Your job isn't to prevent all failures. It's to find the companies that survive and thrive.

Watch for sectors that benefit from the downturn. During COVID, remote work tools exploded. Financial infrastructure for distributed teams became essential. Consumer behavior shifted permanently in some categories. Look for irreversible trends.

The conviction you need

The hardest part about investing in downturns is swimming against the current. Your peers will question your judgment. LPs might get nervous.

You need conviction that comes from seeing thousands of companies and understanding what actually drives success. At Hustle Fund, that conviction came from reviewing over 40,000 companies and doing 700+ deals.

We invested during the downturn, and those companies had time to build while competition for talent decreased and customer acquisition costs dropped. By the time the market recovered, they had real traction.

If you're serious about angel investing through economic cycles, building your own conviction is essential. See enough companies. Make enough investments. Learn from both wins and losses. And when the next downturn hits, you'll know exactly what to do. 

Angel Squad provides access to deal flow, portfolio construction strategies, and a community that stays active regardless of market conditions. Because the best returns often come from the investments nobody else wanted to make.