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VC Investments in Times of Crisis

The world is going through a tough phase. Every decision, financial

or otherwise is taken in the light of what will be the face of the world

during or after the present crisis. Even the common man thinks twice

before spending money on any non-essential item and wishes to

save it for the ‘uncertain future.’ Similarly, strategic venture capital

investments are also subject to the investors' close watch.


The Scenario has changed and so has the

investment strategy


Venture Capitalists across the globe seem to have become so

reserved and seemingly reluctant in investing further. Market

reports suggest that some VCs, who wish to take a short-term

perspective, have revised their portfolio and have included only

those companies which seem to last the crisis. On the other hand,

some have withdrawn their capitals while others, taking a long-term

perspective, are still positive and have decided to continue

supporting a variety of sectors.


So, where are we today?


Is the crisis situation temporary, or is it going to last long? Crises

have struck businesses worldwide in 2007 as well and in the past as

well. History shows us that businesses have survived those times and

it is believed that the world will survive the present crisis as well.

However, Covid crisis impact is projected to be different in different

sectors. For instance, travel, hotel and restaurants have suffered

huge losses in the last two years.





What is the prediction for VC Investment?

Uncertainty or a comeback


Until July and August 2020 there was not a single person who could

say that business will be as usual after the crisis. This is due to the

fact that the pandemic had put a halt on business processes

completely. Series of lockdowns in India and across the world have

really crippled the system.


Similarly, nobody is willing to predict the future as present scenarios

are really depressing. Now, it is April 2021 and things seem to have

further worsened due to the Covid second wave in India. At this point

of time, it seems really hard for economists to predict anything

positive. However, one thing seems to be pretty sure that things will

certainly improve and the life ahead may not be as usual but it will

certainly be better than the present.


Revival and come back on the cards


The present and past crises have taught the world economies to find

ways in which they could remain firm and not collapse and also grow

during the process. Despite all odds, global economies are

searching for ways to revive and make a comeback. Examples of

startups that started in the last crisis include WhatsApp, Snapchat

etc.




Present Pandemic Vs. the Financial Crisis of Year 2007-2009


The famous financial crisis of 2007 shocked the world and especially

the venture capital market. There was a downtrend in initial funding

and later funding was hardly available. The crisis had also left

various investors vulnerable. But the world has been able to come

out of that crisis and it is highly believed that it will wade through

these tough waters as well.





Ray of hope - this crisis too shall pass


Whatever be the crisis and whatever be the nature of the crisis,

world economies know one thing, which is – business must continue.


It is also the ray of hope and the guiding light that this crisis too

shall pass.


Fundraising, VC Investment have always been tough


At any stage or given point of time, be it during a world crisis or a

boom, fundraising has always been a tough bet for the founders.

During a crisis, venture capitalists become too reserved, they revise

their investments and align them to the safest of the sectors. This

often seems to lead to disturbance in the equilibrium and some

business sectors end up facing the heat.


Low VC Investments in 2020 and 2021


Venture capital investments have seen a nosedive last year,

especially during May. Overall investments are reportedly abysmally

low this year as well. However, three sectors viz. Fintech, Healthcare

and Education have spearheaded VC investments in 2020 and it

seems that this trend is going to continue in 2021 as well.


Sectors which got hit the most and when they would

revive?


(Image Source- New Indian Express)


Reports quoting a study by Nasscom, suggest that telecom and

health tech are the sectors which have a projected impact duration

of four months while retail and travel would be the worst hit with a

projected impact duration of next nine to twelve months.


Thus, we can see that with the overall market sentiment is still down

except VC Investment in Covid/Health related ventures, due to the

crisis, the market might remain dormant for the next few months

until world economies find a way or a sure cure for covid.

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