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some have withdrawn their capitals while others, taking a long-term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