Why it’s time to invest in early-stage venture capital funds

Warren Buffett often says, “Buy when there’s blood in the streets and sell when there’s euphoria,” and today that’s truer than ever.

Right now, we’re seeing a global correction in stock prices, driven by macroeconomic factors like inflation and geopolitical instability, as well as microeconomic factors like the recent (and steep) drop in cryptocurrency prices.

Whichever way you look at it, it’s a scary time for capital allocation, but it’s a time of generational opportunity.

The public markets are likely to continue to feel the pressures of inflation and rising interest rates, which will make stocks less attractive until there is clarity of direction (or the Federal Reserve provides it). Rising rates will make fixed-income securities more attractive, but only marginally so long as inflation is not contained. Assets such as real estate are likely to retain their value, but will require significant capital expenditures and management resources.

The current landscape presents institutional investors with difficult choices about how to deploy capital. History often repeats itself, and in previous cycles mirroring today’s reality, huge returns in early-stage venture capital were made by those who invested heavily in that stage of the cycle.

Relying on uncertainty

Many of the leading venture capital firms that have become prominent over the past two decades earned their reputations (and huge assets under management) by building on the uncertainty we feel today and buying high-quality SaaS startups in the early stages of development at an undervalue.

There are plenty of very high-quality teams with strong balance sheets and great margins creating potentially world-changing products. If this downturn drags on for years, these companies will have enough cash to survive, as well as products they can sell to big businesses, even in recession-like scenarios. As investors exit the market, the value of these companies will decline, and once-in-a-lifetime buying opportunities will open up for venture capitalists determined to invest in them.

Invest while it’s hot

We won’t see more opportunities like this in our lifetime, so it would be unwise to think there will be another such chance to invest.

It’s easy to be a venture capitalist when the markets are booming. In the last decade, it’s hard not to notice. What sets venture capitalists apart from the rest is their ability not only to determine which startups will be long-term winners, but also to muster the resolve to invest in uncertain, frightening times.

Despite the obvious negative effects of the downturn we are currently seeing, this is a uniquely rare opportunity for venture capitalists to be tested and highly rewarded.

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