Warren Buffett often says to “buy when there’s blood in the streets and sell when there’s euphoria” and that moniker is as true today as it has ever been.
We are witnessing a global correction in equity prices, driven by macroeconomic factors like inflation and geopolitical instability as well as microeconomic factors like the recent (and dramatic) declines in cryptocurrency prices.
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No matter where you look, it’s a scary time to deploy capital, but that’s exactly when generational opportunities are created.
The public markets will likely continue to feel the pressure of inflation and rising interest rates, making equities less attractive until directional clarity is created (or provided by the Federal Reserve). Rising rates will make fixed income securities more attractive, but only marginally until inflation is curbed. Assets like real estate will likely hold their value, but require significant capital expenditures and management resources.
The current landscape leaves institutional LPs with a difficult choice on how to deploy capital. History often repeats itself, and in previous cycles mirroring today’s reality, enormous returns have been generated in early-stage venture capital by LPs who invested deeply at this stage of the cycle.
Leaning into uncertainty
Many of the bellwether VCs that have become household names over the last two decades earned their reputations (and their massive assets under management) by leaning into the uncertainty that we feel today and buying high-quality, early-stage SaaS startups at discounted valuations.
There are many very high-quality teams out there with strong balance sheets and plenty of runway building potentially world-changing products. If this downturn remains protracted for years, these companies have enough cash on hand to survive, as well as products they will be able to sell to large enterprises, even through recession-like scenarios. As investors pull back from the market, these companies will suffer valuation declines and present once-in-a-lifetime buying opportunities for venture capitalists with the resolve to invest in them.
Invest while the iron’s hot
We won’t see many more of these opportunities in our lifetimes so it would be unwise to think there will be another chance like this to invest.
It’s easy to be a VC when markets are booming. Over the last decade, it has been difficult to miss. What sets the marquis VCs apart from the rest is their ability to not only identify which startups will be the long-term winners, but to muster up the resolve to invest during uncertain, scary times.
I suspect this downturn will shake out many investors—sending them running for the hills. But as they leave the market an enormous opportunity will be presented to those of us with the willingness to believe in the right founders at the right time.
Despite the obvious negative effects this downturn will create, it’s a uniquely rare opportunity for the best VCs to be put to the test and be rewarded handsomely on the other side.
Marc Schröder is the managing partner and co-founder of Maschmeyer Group Ventures. 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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