VCs Who Wait Too Long For A Market Rebound Risk Losing Out On The Best Deals

The ongoing downward trend in venture funding has many founders desperately trying to secure their next round.

Runways are running out, and many great startups with strong businesses and future prospects are willing to take a hit on valuations, and even take a downround, in order to continue operating.

Venture funds, however, are waiting for the directional resolution needed to not only feel confident in the market rebound but also to provide their limited partners with a sense that deploying fresh capital into venture is the right move.

Currently, everyone seems to be in a holding pattern waiting for this resolution.

Don’t wait too long

If history has taught us anything, it’s that oftentimes this resolution emerges after many of the best opportunities have been taken.

I believe that over the next six to 24 months, many of the venture deals that will go down in history as legendary will be made. As investors, it pays to be early — and that means deploying capital right before the market has directional consensus.

Marc Schröder of Maschmeyer Group Ventures

The difficulty for investors will be managing the risk of making investment decisions just as — or ideally just before — positive directional consensus is reached. Once that moment happens, investors will begin piling back into the market, driving prices, valuations and competition for deal flow back up.

The sweet spot to make once (maybe twice) in a lifetime investments is coming up on the horizon, but with runways for many startups reaching their ends, the decision-making process for investors will become increasingly scary.

Many factors could contribute to this rebound — or derail its possibility completely. The Ukraine war ending peacefully or the monetary policy soft-landing being confirmed could turn the tide of the markets overnight.

However, the opposite could very well happen and we could be in for a deeper, more protracted downturn than anyone anticipated.

Investors are obviously tracking these dynamics closely and monitoring the herd for directional agreement, but for the time being, many investors are stuck on the fence.

Until venture funds and their LPs start deploying capital again, the clock will continue to count down and many otherwise good startups will reach the end of their runways and close up shop.

A great many startups will reach that point over the next six months, so investors are running out of time to reach that directional consensus. If the macroeconomic landscape doesn’t provide some sense of clarity within that timespan, then VCs and their LPs will be between a rock and a hard place — either deploy capital to keep some portion of their portfolio alive, or accept a significant (potentially fund-crippling) number of failures.

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.