How would a recession affect venture-funded startups?

Well, I distinctly remember what happened the last time - investor capital dried up really quickly, which significantly lowered early stage financing and made deal terms quite a bit worse. Additionally, startups had a lot harder time actually making revenue since both b2b and b2c spending lowered significantly.

That said, this time it's really hard to say because we still have historically low interest rates and not a whole lot of places for people with money to invest it at higher returns, so that's sure to have an impact.

It will be GREAT.

Ok, maybe an overstatement. Fewer companies will be funded, many many will die. The market will viciously slaughter any weak business plans. But the few that survive will THRIVE. With brutal market pressure, only the best ideas will move forward... there will be a complete inability to hide from the reality of bad plans or execution. High quality employees will be more willing to join for less salary, extending runway. When the economy recovers, those scrappy survivors will already have market share and will be in the best possible to ride the wave upward to absolute dominance.

Seriously, if you want to join a startup, definitely consider looking for companies that seem to be doing well (or even doing pretty-much-ok) in the depths of the recession.

It might actually be good. Companies need more funds not so much because they need it to live, but because they want to outpace the competition. As one mid stage VC put it, "There's war and we sell the bullets."

Startups have developed a bad habit of overspending (at least in Asia) where they're offering unsustainable discounts, playing bait and switch, swarming competitors with false reviews and calls, or things like buying phones and offering generous contracts for partners, who quit their job, and then find that the startup is not so generous 3 years later.