Many of the leading, household-name VCs earned their reputation (and their returns) by investing during the 2008 crisis. Startup valuations were lower, giving VCs great terms to invest, and amid a macroeconomic slump founders were envisioning and building a whole new future. This included ridesharing (Uber, Lyft), messaging that finally improved upon email (Slack), and much more.
Some of the companies they funded at that low went on to be multibillion-dollar, behemoth publicly traded companies over the following decade. It was the best-case scenario as far as those investors are concerned, and their willingness to invest in the face of a recession and economic collapse generated returns that have secured their places in VC history.
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History repeats itself, and I think we are on the verge of this story repeating itself. The entire essence of venture capital is to invest on long time horizons in paradigm-shifting companies. If you’re able to do that at a discount during downturns, your returns can be accelerated dramatically.
Right now, many economists are predicting a recession lasting through 2024. At the same time, there are many VCs that recently raised new, large funds and have plenty of dry powder to deploy. With startup valuations coming down from the stratosphere, many of these funds are waiting for their moment to step in and secure significant equity at a discount. When this moment will come we don’t yet know, but if history is any indicator–it’s on its way. If you have a ton of dry powder, this can be the time to place big, majority shareholder bets that will be massive home runs over the next decade.
If you’re a fund trying to keep powder dry, this is a great time to dollar-cost average. Corporate earnings are definitely going to take a hit, but their budgets and need to compete on technology will remain intact, and even potentially elevated.
The economic boom of the past decade-plus has created enormous value and wealth for the world’s largest corporations, and they are all actively seeking opportunities to outcompete using software, Web3, proptech, energy and other startup verticals where innovation is blooming.
There are many companies in the seed through Series B phase that are well positioned to survive (and potentially even thrive) as the labor supply opens up and competition diminishes. Many investors have already created their shortlist of these companies and are waiting to pounce when the moment is right.
These investments will be their marquis positions moving through this downturn and into the next wave of growth, high valuations and froth. Instead of chasing the hottest deals, they’ll be able to sit back and watch their positions grow into mature, highly profitable companies that have proven their ability to survive the worst the global economy can muster.
Despite the volatility, fear and risk that is coming our way, those things represent opportunity to keen investors. This cycle has repeated itself many times and there’s no reason to think this time will be different.
As an early-stage VC, I feel all of those concerns deeply, but I’m also excited for the potentially generational opportunity they present. As investors, how many of these chances will we get during our lifetime? Maybe two or three?
They cannot be squandered, and there’s no doubt that the best investors will capitalize on them the way they always have. Sure, many funds and many startups will fail, but those that are able to position themselves well into this coming cycle will be the next a16zs and Sequoias—I plan to be among them.
Marc Schröder is the managing partner and co-founder of MGV, and is focused on working with world-class tech entrepreneurs and establishing the MGV legacy. Before co-founding MGV, Schröder served as the head of global sales at the Maschmeyer Group and was an investor at Seed + Speed Ventures. Originally from the Netherlands, he grew up in South Africa and graduated with a law degree from Bertolt-Brecht University.
Illustration: Dom Guzman
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