after the last With weeks of geopolitical volatility engulfing the financial and cryptocurrency markets, it seems that everyone can only talk about what startups and venture capitalists can, should or will do in the face of the expected downturn.
As an investor who takes pride in identifying the best early-stage startups, I believe that VCs with high-quality seed investments need not fear a potential downturn. Clearly, a slowdown will result in lower valuations and lower capital inflows for startups, but that may not be the worst for investors looking to double their investments at attractive prices.
The capital markets are still on the side of the founders, and there is plenty of room to rebalance the weights. Venture capitalists should be excited about upcoming buying opportunities.
The startup has slowed spending and expanded its runway during the pandemic. In addition, they are able to increase the big round with increasing frequency. Startups that now manage their finances wisely boast strong balance sheets, low costs, and plenty of cash.
Early stage investing is the best place for venture capital when it comes to global uncertainty.
For venture capitalists, this means that as the financial market slows, valuations of these strong, long-running companies are declining, allowing investors to increase their share of the cap tables of their preferred portfolio companies at a discount.
If you look at the 2008 financial crisis, early and late startup funding collapsed, but startup funding skyrocketed, leaving some of the biggest companies we see listed on exchanges today. This increase in seed funding was driven by the advent of new technologies such as mobile and cloud technologies.
Today, there are similar opportunities in SaaS and Web3. It took several years for early and late stage funding to return to 2007 levels, but the amount of capital invested in the seed round continued to rise during this time.
Investors became wary of writing huge checks to companies that needed significant growth and scaling in their valuations. The risk/reward just wasn’t balanced. On the other hand, seed stage companies have faced challenges of a more reasonable scale in order to reach growth milestones.