The pandemic, the war in Ukraine, inflation and the market correction. It’s a tough time to invest but it’s also an opportunity for the bold, writes Michael Bornhäusser in an article for finenews.first.
This article is published on finenews.first, a forum of authors specializing in economic and financial topics.
Stocks fall sharply. It is enough to place a stop-loss order and recover part of the investment. Then just wait for the market to bottom out and come back. Bingo!
This does not work for private market investments. Whether through a venture capital fund or a private equity fund, no exit means no return of capital. There is nothing to stop the losses.
Let’s go back a bit! Everything was in order barely twelve months ago, despite the pandemic. Stock markets only rose, interest rates were negative and private companies, especially those in the online sector, saw record valuations. IPOs, divestments, sales, secondary investments, and investment rounds were constantly planned and executed. Anyway, it was time to go out. Companies late to the show have their IPO plans canceled and transactions delayed. Fundraising has become extremely difficult – to put it mildly.
“The new magic word is profitability”
Some of the biggest private players in the market say the current situation is “catastrophic”. Others say “everything will be fine in about 12 months”. JP Morgan is one of the most negative voices of the moment. They don’t believe the market will recover in the next 24 to 36 months. Venture capital and private equity firms must assume that takeover and buyout valuations will drop by as much as 60%, one of their bankers said.
The new magic word is “profitability”. It is a metric that has granted a very marginal role to technology, especially in e-commerce or e-services, two sectors that have benefited greatly from the pandemic. Venture capital-backed startups are particularly hard hit as they are unable to even consider seed rounds or potential exits.
“Outside money is only here at massively diminished valuations from 12 months ago”
Venture capital is like dancing on razor blades right now. “Reduce cash consumption,” writes Sequoia, one of the largest venture capital funds in the United States. Personnel and marketing costs must be reduced, growth targets lowered and investments delayed. If that’s not enough and businesses still need the cash, they need to bridge the gap. It means keeping the business alive until this crisis and possibly the next has passed. External money is only there at massively diminished valuations from 12 months ago, if at all. The only advantage in the current environment is that the entry price for investors is also much lower.
The current markets, like all crises can be, are an opportunity to attract courageous funds and investors with both liquidity and a flexible investment horizon. But they will have to show great courage. according to some market participants. It’s hard to see anything through the mess right now. Inflation, war in Europe, supply chain and logistics issues, and a pandemic that has by no means gone away. All carry potentially significant risks for private market investments and there is no stop-loss order that serves as an emergency brake.
Michel Bornhäusser is Chairman and Managing Partner of Bulb Capital, a Swiss venture capital firm founded in 2019. Previously, he led the private equity and product activities of Swiss private bank Sallfort. In the 1990s, Bornhaeusser worked as an IT entrepreneur. He co-founded Pixelpark, which went public in 1999. Since inception in 2019, Bulb has invested over $180 million in 13 startups in the US, UK and Latin America, participating in 17 funding rounds and completing eight successful outings.
Previous contributions: Rudi Bogni, Peter Kurer, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappelle, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes , Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-BisangNicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gérard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frédéric Papp, James Syme, Dennis Larsen, Bernd Kramer, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Nicholas Yeo , Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Claude Baumann, Markus Winkler, Konrad Hummler, Thomas Steinemann, Christina Boeck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Moebert, Jacques-Aurélien Marcireau, Ursula Finsterwald , Claudia Kr aa z, Michel Longhini, Stefan Blum, Zsolt Kohalmi, Karin M. Klossek, Nicolas Ramelet, Søren Bjønness, Gilles Prince, Salman Ahmed, Peter van der WelleKen Orchard, Christian Gast, Jeffrey Bohn, Juergen Braunstein, Jeff Voegeli, Fiona Frick, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Fabiana Fedeli, Marionna Wegenstein, Kim Fournais, Carol Millet, Swetha Ramachandran, Thomas Stucki, Neil Shearing, Claude Baumann, Tom Naratil, Oliver Berger, Robert Sharps, Tobias Mueller, Florian Wicki, Jean Keller, Niels Lan Doky, Karin M. Klossek, Johnny El Hachem, Judith Basad, Katharina Bart, Thorsten Polleit, Bernardo Brunschwiler, Peter Schmid, Karam Hinduja, Zsolt Kohalmi, Raphaël Surber, Santosh Brivio, Mark Urquhart, Olivier Kessler, Bruno Capone, Peter Hody, Andrew Isbester, Florin Baeriswyl and Michael Bornhaeusser, Agnieszka Walorska, Thomas Mueller, Ebrahim Attarzadeh, Marcel Hostettler, Hui Zhang, Michael Bornhaeusser, Reto Jauch, Angela Agostini, Guy de Blonay, Tatjana Greil Castro, Jean-Baptiste Berthon, Marc Saint John Webb, Dietrich Goenemeyer, Mobeen Tahir, Didier Saint-Georges, Serge Tabachnik, Vega Ibanez, David Folkerts-Landau, Andreas Ita, Teodoro Cocca, Michael Welti, Mihkel Vitsur, Fabrizio Pagani, Roman Balzan, Todd Saligman, Christian Kaelin, Stuart Dunbar, Carina ScharteBirte Orth-Freese, Gun Woo, Lamara von Albertini, Philip Adler, Ramon Vogt, Andrea Hoffmann, Niccolò Garzelli, Darren Williams, Benjamin Böhner, Mike Judith, Jared Cook, Henk Grootveld, Roman Gaus, Nicolas Faller, Anna Stünzi, Thomas Höhne -Sparborth, Fabrizio Pagani, Taimur Hyat, Ralph Ebert, Guy de Blonay, Jan Boudewijns, Beat Wittmann, Sean Hagerty, Alina Donets, Sébastien Galy, Lars Jaeger, Roman von Ah, Fernando Fernández, Georg von Wyss, Stéphane Monier, Stefan Bannwart, Andreas Britt, Frédéric Leroux, Nick Platjouw, Rolando Grandi, Philipp Kaupke, Gérard Piasko, Brad Slingerlend, Dieter Wermuth, Grégoire Bordier, Thomas Signer, Brigitte Kaps and Gianluca Gerosa.