Better results for US venture capital • TechCrunch

We have seen it widely Losses in the international equity market this year. After a decade of bull runs, many venture capital funds have found themselves holding overvalued stocks in companies whose IPO prospects have been canceled or significantly delayed.

The markets are now highly volatile, as evidenced by the widespread correlation between asset classes. There are certainly structural factors that sow the seeds of pessimism, such as hyperinflation. The US Federal Reserve, the hawk who presides over global interest rate hikes; Europe’s Evolving Energy Crisis; the first land war in Europe in 70 years; various supply chain disruptions; An ongoing global pandemic; Rising global trade tensions, and, sunrise, China’s slowly collapsing credit bubble.

While some of the headwinds have been priced into the public markets, their severity and duration remain unclear. As for the US tech sector, the Nasdaq Composite Index is down sharply year-to-date, price-to-earnings multiples are at six-year lows and venture capital is down sharply. The big-cap public tech company’s revenue and earnings have generally held up well, but are expected to falter in the coming quarters due to Fed-stimulated demand destruction.

Despite all these current and high-profile pressures, it is our view that the narrative of the supercycle of technology and innovation remains unchanged and that many companies are ready for growth. Private tech companies are refocusing on fundamentals, and valuations are returning to reasonable levels.

It is our opinion that the current economic situation creates a unique opportunity for venture capital funds to get high profits by holding dry powder, as seen for VCs engaged in the period of 2010-2014.

Even if the Fed rules out the natural three-year transition period from reverse to golden period, we still believe the 2023/2024 vintage will reach golden period levels.

A sound investment process examines both macro trends and fundamental data to assess the likelihood of various possible outcomes. We identify two different possible outcomes for the US private technology sector over the next 6-12 months.

Condition 1: More pain before recovery

A few weeks ago, Federal Reserve Chairman Jerome Powell predicted that the Federal Reserve’s efforts to control inflation would lead to “a sustained period of below-trend growth” that would “cause some pain for households and businesses.”

This indicates a period of lower range-bound US equity price volatility over the next 12-24 months. If the following negative economic and geopolitical developments occur, such an outcome may occur in the near future.

Powerful Federal Reserve

An overly hawkish Federal Reserve during a downturn in the US economy could cause a slowdown in public equity markets and another 20-25% decline in public equity prices. Such conditions continue to depress price-to-earnings multiples and negatively impact top-line performance.

While some parts of the economy remain strong, it now seems clear that Fed Chairman Powell is having a Paul Volcker moment: focused solely on breaking the back of inflation, whatever the outcome. Organizing a “soft” landing was an increasingly difficult “hopeful” strategy.

Assuming we see interest rates rise over the short to medium term, long-term profitability prospects for the U.S. tech sector, and perhaps the opposite, remain strong. A depressed market can result in above-average returns for the technology sector (especially SaaS and cloud-enabled businesses) due to the rapid expansion of additional infrastructure and supply chain improvements required by traditional brick-and-mortar. and mortar trades.

High geopolitical tension on Ukraine

It’s been more than six months since Russia invaded Ukraine, and the economic impact of rising commodity prices is beginning to reverberate across Europe. While it is too soon to predict the military outcome of the conflict, it is clear that Europe and the US are investing morally and financially in preventing Russia from successfully annexing parts of Ukraine.

The current situation presents a conflict at best. The conflict in Ukraine Similar to the Soviet-Afghan war in the 1980s, Threatened and cornered, Russia may resort to the latest fury, including nuclear threats or limiting/eliminating Europe’s energy and commodity resources.

Big geopolitical tensions around Taiwan

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